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Author: brwhiz Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76398  
Subject: Questions on 403(b) and 457 Plans Date: 5/11/2004 2:53 PM
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I have a number of questions regarding 403(b) and 457 plans.

The plans, as administered by my employer, are handled by an outside broker who seems to be sorely lacking in detailed information about these plans and appears to be intent in selling participants on his favorite high load mutual funds. The only limitations imposed on contributions are those set by the IRS. My employer makes no contributions to the plan.

I have been a participant in the 403(b) plan for several years. Recently I terminated the plan and rolled over the assets into an IRA. I did this in preparation to rolling the assets into my Roth IRA. I have had the Roth IRA for over 5 years and over 60 years old, so anything which goes into the Roth is still immediately available with penalties. this can easily serve as my source of emergency funds, if needed.

I have a taxable brokerage account where I have been able to achieve after-tax returns of approximately three times the yield of the best investment vehicles available through the 403(b); hence my interest in converting the 403(b) assets into the IRA and then into the Roth IRA.

Due to several fortuitous events, I now have a large sum of available cash. I have no mortgage expense, I have excellent health coverage, and no other debt except an automobile loan at a very favorable rate of interest (0.9APR).

I am trying to develop a plan for imminent retirement in 3 years. I want to maximize my before-tax contributions during the next 3 years, rolling over the assets into my IRA as frequently as possible, and then moving the assets (paying the required taxes, of course) into my Roth. My tax bracket in retirement will definitely be greater than my tax bracket during the next 3 years.

I have been employed continuously for 15 years by the same employer, making me eligible for increased elective contributions. In the 403(b), I am allowed the maximum elective amount this year of $16,000. This is comprised of the normal limit of $13,000 plus an additional long-term employee elective of $3,000 (this has nothing to do with the catch-up amount of $3,000). I am also eligible for the over-50 catch-up amount of $3,000 for a total of $19,000 in contributions to the 403(b) this year.

This year my employer initiated a 457 plan for which I am also eligible. The 457 plan has the additional provision of allowing an accelerated catch-up amount equal to the maximum elective contribution for the year during the last 3 years prior to retirement. Is this amount the regular elective amount of $13,000, the $16,000 to which I am entitled as a long-term employee, or the $19,000 total allowed contributions for this year? Is this accelerated catch-up also available for the 403(b) plan?

Conceivably, if all contributions are the same for both plans, I could be eligible to contribute as much as $38,000 to each plan. Does the $41,000 limit on contributions this year apply to EACH of the plans separately or is it the aggregate limit on BOTH plans combined?

At a seminar a year or two ago, the speaker talked about a maximum limit on total catch-up contributions. The figures given were $15,000 for 403(b) plans and $22,000 for 457 plans. I can't find these limits specified in the Internal Revenue documentation. The only such limit that I can find is a maximum of $15,000 total additional contributions under the provisions for long-term employees.

As noted earlier, I want to roll-over plan assets into my IRA as frequently as possible. How often can this be done? And then, how often can I convert assets in my IRA to my Roth? Is there any minimum or maximum amount that can be converted to the Roth at any one time or in any one period (such as calendar year)?

I have also seen information regarding the roll-out of Roth-403(b) and Roth-457 plans (in 2006 as I recall). Where can I get more info on these (even though it looks like they might be too late to help me)?
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Author: brwhiz Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40973 of 76398
Subject: Re: Questions on 403(b) and 457 Plans Date: 5/11/2004 4:05 PM
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Correction to my above post:

The latter part of the third paragraph should read:

I have had the Roth IRA for over 5 years and am over 60 years old, so anything which goes into the Roth is still immediately available without penalties. This can easily serve as my source of emergency funds, if needed.

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Author: 3muttsmom Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 41009 of 76398
Subject: Re: Questions on 403(b) and 457 Plans Date: 5/14/2004 8:58 PM
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I'm responding to this post, as no one else has and wanted to kick-start the thread, as I'm interested in brwhiz' questions.

What he's proposing appears to be a way around the $3K (or more for the over 50 crowd) limitation on Roth contributions. Yes, I realize that conversions are not contributions, but in this case it would amount to the same thing done over and over, yes?

I think I understand that one cannot convert a 401(k) balance while still employed at the same employer, so is this a loophole that allows those working for not-for-profits to do just that? If so, doesn't really seem fair to me.

That's why I'm curious to see what the answers are. (Unless I've completely misunderstood the questions/situation.)

TIA
3MM

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Author: brwhiz Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 41046 of 76398
Subject: Re: Questions on 403(b) and 457 Plans Date: 5/19/2004 12:11 AM
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I think I understand that one cannot convert a 401(k) balance while still employed at the same employer, so is this a loophole that allows those working for not-for-profits to do just that? If so, doesn't really seem fair to me.

Since posting my questions I have found out that the same limitations apply to 403(b) plans as 401(k); I have to leave my 403(b) employer before I can complete the rollover of 403(b) assets into the IRA. I found this out when my 403(b) custodian returned my application for transfer, indicating that I needed to indicate the circumstances of my disbursement. Since I'm over 60, I could take the distribution (paying the taxes) but it couldn't be rolled over into the IRA.

However, when I retire in 3 years, I can accomplish the rollover at that time. Or, I could retire now and give up all of the extra contributions I could make in preparation for the rollover. Or I could leave my present employer (sacrificing the ability to contribute the long-term employee catchup amounts), do the rollover into the IRA, and then go back to work for another employer (or maybe even my current employer).

So many questions; so few answers (so far).

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Author: jesserivera67 Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 41087 of 76398
Subject: Re: Questions on 403(b) and 457 Plans Date: 5/21/2004 2:28 PM
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...when I retire in 3 years, I can accomplish the rollover at that time. Or, I could retire now and give up all of the extra contributions I could make in preparation for the rollover. Or I could leave my present employer (sacrificing the ability to contribute the long-term employee catchup amounts), do the rollover into the IRA, and then go back to work for another employer (or maybe even my current employer).

Here's some sites for you in case you haven't read them already (looks like you have but thought I'd send this any way)

http://www.403bwise.com/
http://www.fool.com/money/401k/401k.htm
http://www.irs.gov/pub/irs-pdf/p571.pdf
http://www.irs.gov/pub/irs-pdf/p557.pdf
http://www.irs.gov/retirement/article/0,,id=96315,00.html

I think the above info should have answers to your questions and if you have read them...I'd give the IRS a call at the numbers at the end of the publications. Taking a brief look at the 403(b) document it seems there is a calculation for the MAC but I didn't see anywhere where it said you could not tack on the 457 max contribution to the 403 max cont. but I would call.

I don't think anyone can answer your other questions but you. I think the first question is what is your goal for retirement? Do you need to contribute of the next three years? (i.e. if you've got enough money to accomplish your retirement goals then what the heck...retire)

Do you need SSN? Do you want to continue working to maximize that benefit? Are you accumulating retirement savings for yourself and for an inheritance perhaps? charity maybe?

It's tough to answer your questions without understanding where you are trying to go. Hopefully the above questions will help get you to those answers.

HTH.


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