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Author: Longing4Cheese Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 25223  
Subject: Roll $$ into 401k/403b to BORROW against? Date: 2/4/2008 11:59 AM
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Hello, wise Fools. My fiancée and I need to come up with a sizeable amount of money for in vitro fertilization, and the only/best way we see to to that is to borrow against her retirement. We understand that under most circumstances this is a bad idea, but, as I say, this is for medical costs that are not covered by insurance, and we need to do this ASAP for maximum chance of a successful pregnancy. We think we can pay it back in a couple of years.

Anyway, here's are the specifics: When she taught at a big private university, the university matched her savings contributions 2-to-1, and so in a TIAA-CREF money market account there's $7K in a 403b and ~$14K in a 401a. If she still worked for that school, she would be able to borrow against her contribution (the $7K) and would have five years in which to pay back the loan to herself without incurring tax penalties.

She now teaches at another university, where she started a new retirement account, but the HR people tell her that this kind of borrowing arrangement is not available.

So here's our question:

**Can she roll the money from both the 403b and the 401a into a new account somewhere else, where she can then borrow against it? If so, what kind of account would that be, with what kind of terms?**

She also has $7200 (that is 100% her contributions) in a "Direct Contribution Plan Safe Harbor" account with Fidelity from an even older job, which is collecting a whopping 1.2%. Clearly, this should move somewhere else. It would be great if we could combine this with the $ from the TIAA-CREF account.

We're very stressed about how we're going to pay to have a child, and timing is critical. Thank you for any insights you may have.
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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 22973 of 25223
Subject: Re: Roll $$ into 401k/403b to BORROW against? Date: 2/4/2008 12:38 PM
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She now teaches at another university, where she started a new retirement account, but the HR people tell her that this kind of borrowing arrangement is not available.

So here's our question:

**Can she roll the money from both the 403b and the 401a into a new account somewhere else, where she can then borrow against it? If so, what kind of account would that be, with what kind of terms?**


Since a borrowing arrangement in her new plan is not available, the answer, unfortunately, is no.

Borrowing against retirement assets allowed by law, but not required to be offered, in employer plans ONLY. Employer plans, if borrowing is allowed, generally only make loans to current employees, so your fiance's current plan is her only option. If you have an employer plan that allows for loans, you could borrow against your plan. Borrowing against IRAs is prohibited.

She also has $7200 (that is 100% her contributions) in a "Direct Contribution Plan Safe Harbor" account with Fidelity from an even older job, which is collecting a whopping 1.2%. Clearly, this should move somewhere else. It would be great if we could combine this with the $ from the TIAA-CREF account.

You can combine this with the TIAA/CREF account money and roll it all to either an IRA or your fiance's current retirement account. However, since your fiance's current plan doesn't allow loans, she would still be unable to borrow the money.

We're very stressed about how we're going to pay to have a child, and timing is critical. Thank you for any insights you may have.

There is an exception for the 10% withdrawal penalty (although she would still owe taxes) for any unreimbursed medical expenses in excess of 7.5% of her AGI. See IRS Publication 590 for details: http://www.irs.gov/pub/irs-pdf/p590.pdf Since you are not currently married, her AGI is presumably lower than your combined AGI would be, so the floor on the amount that could be exempted from the penalty is lower. However, the medical expenses need to occur in the year of the withdrawal. Plus, so she would keep the lower floor for withdrawals, you couldn't get married until the following year, as you are married for the entire year in the eyes of the IRS, even if you get married on Dec 31.

Does the fertility clinic have any payment plans? Do you have any relatives that can help you out? Other options would be credit card balance transfers, or possibly a HELOC if you own a home. However, in the current lending environment, these loans may be tough to come by if you don't already have the lines of credit set up.

One thing to think about - I know that fertility treatments are very expensive, and I'm sure that you, as a couple, must want to have a child very badly to even think about going through the pain, agony and likely several months of disappointments that fertility treatments will result in. But if you can't afford to pay for the fertility treatments now without borrowing from somewhere, you are going to be putting yourself in a lot of debt even without the 'normal' additional expenses that a child will bring into your lives. Any saving that you could do before you start the fertility treatments would be better than trying to pay off the debt for several years while raising the child(ren) that the fertility treatments result in.

AJ

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Author: foolazis Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 22974 of 25223
Subject: Re: Roll $$ into 401k/403b to BORROW against? Date: 2/4/2008 2:00 PM
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Anyway, here's are the specifics: When she taught at a big private university, the university matched her savings contributions 2-to-1, and so in a TIAA-CREF money market account there's $7K in a 403b and ~$14K in a 401a. If she still worked for that school, she would be able to borrow against her contribution (the $7K) and would have five years in which to pay back the loan to herself without incurring tax penalties.

She now teaches at another university, where she started a new retirement account, but the HR people tell her that this kind of borrowing arrangement is not available.

So here's our question:

**Can she roll the money from both the 403b and the 401a into a new account somewhere else, where she can then borrow against it? If so, what kind of account would that be, with what kind of terms?**


I'm afraid she is out of luck if her current employer does not have a loan provision in her plan. She can roll the 403b money from her former employers into an IRA, but you can't borrow against an IRA. Sorry for the bad news.

foolazis

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 22975 of 25223
Subject: Re: Roll $$ into 401k/403b to BORROW against? Date: 2/4/2008 5:54 PM
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My fiancée and I need to come up with a sizeable amount of money for in vitro fertilization, and the only/best way we see to to that is to borrow against her retirement. We understand that under most circumstances this is a bad idea, but, as I say, this is for medical costs that are not covered by insurance, and we need to do this ASAP for maximum chance of a successful pregnancy. We think we can pay it back in a couple of years.

Warning! This response is nothing but unsolicited advice. Your technical questions regarding retirement account law have been accurately addressed, with some typical spot-on extras from aj.

Read on or not, as you like. Heed me or not, as you like. Please note that I'm forced to make some assumptions since so much of the story is missing. This is not a criticism, just an observation that I may be drawing some incorrect conclusions. So....

I'm old enough to remember shotgun weddings, but I have to admit that the concept of a shotgun pregnancy is new to me. I tend to doubt that a hereditary throne is involved since those successions usually require at least the appearance that the heir was conceived in a sanctioned marriage. I can't imagine a doctor who would assist in in-vitro fertilization in order to produce a child before a scheduled hysterectomy. I hope legacies involving a requirement to reproduce by a given date and the need to make a baby "so Ma can die happy" are the stuff of only bad movies. Yet there's a panicked tone to your post. Thus, I keep coming back to "What's the hurry?"

Your finances sound less than stable. You think you can pay back this loan in a couple of years. The fact that you're borrowing tells me that you don't have much in the way of liquid assets. Yet, aside from an expensive procedure to get pregnant, you have other financial drains looming:

1. Unless "fiancee" is a euphamism, there must be a wedding in your near future. While this can be done for less than $100, it's rare that it is. If you're paying for the wedding, is that money set aside and available, or are we talking about more borrowing?

2. Pregnancies and deliveries aren't cheap. How are the finances for that?

3. She will have at least some period of "confinement," as we used to say. Will she be paid for that, or is it another drain on finances?

4. While I'm told children bring you joy in your declining years, at the front end they're basically energy and money vacuums. How are we set financially for that?

If you're still with me I think you can see where I'm going with this. To the extent possible, try to remove emotion from this decision and take a hard look at whether this is a Foolish course of action.

In any event, best of luck to you.

Phil

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Author: bmillz Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 22976 of 25223
Subject: Re: Roll $$ into 401k/403b to BORROW against? Date: 2/4/2008 11:07 PM
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She can roll the 403b money from her former employers into an IRA, but you can't borrow against an IRA

While it's true that you can't borrow from a IRA, you could take a penalty free withdrawl to the extent that your unreimbursed medical expenses exceed 7.5% or your AGI.

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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 22977 of 25223
Subject: Re: Roll $$ into 401k/403b to BORROW against? Date: 2/4/2008 11:09 PM
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While it's true that you can't borrow from a IRA, you could take a penalty free withdrawl to the extent that your unreimbursed medical expenses exceed 7.5% or your AGI.

Just to clarify - penalty free, but not tax free. And the income derived from the IRA withdrawal would add to AGI, possibly increasing the tax bracket.

AJ

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Author: eugenie4u Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 23287 of 25223
Subject: Re: Roll $$ into 401k/403b to BORROW against? Date: 4/15/2008 2:36 PM
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Why not roll them both (the old 403b and 401a) into a traditional IRA and then roll into a solo 401k?

That would remove the borrowing limits

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Author: eugenie4u Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 23288 of 25223
Subject: Re: Roll $$ into 401k/403b to BORROW against? Date: 4/15/2008 2:38 PM
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Rather I believe it would remove the borrowing limitation on your wife's old plan, I believe you would still be restricted to 50% of the solo 401(k) balance.

You could also roll any traditional IRA's you have into a solo 401k.

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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 23289 of 25223
Subject: Re: Roll $$ into 401k/403b to BORROW against? Date: 4/15/2008 2:45 PM
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Why not roll them both (the old 403b and 401a) into a traditional IRA and then roll into a solo 401k?

It was said in the initial post that the fiancee teaches at a university, and there is no mention of self-employment. A requirement to open a solo 401(k) is that one must be self-employed.

AJ

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Author: eugenie4u Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 23295 of 25223
Subject: Re: Roll $$ into 401k/403b to BORROW against? Date: 4/16/2008 12:03 PM
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Mow the neighbor's lawn.

Tutor his kid for an hour.

Hell, you guys aren't even married yet, you could pay her to do your laundry.

There, she has self-employment income.


You probably don't even need that one hour of self employment income to open the solo 401k, but IANAL.


http://www.penscotrust.com/account/solok.asp#contribution
http://daseducation.wordpress.com/2007/10/09/retirement-accounts-for-the-self-employed-part-2-of-5-the-solo-401k/
http://www.401khelpcenter.com/mpower/feature_070502.html
http://401kpsp.com/unik401k.php

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Author: eugenie4u Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 23296 of 25223
Subject: Re: Roll $$ into 401k/403b to BORROW against? Date: 4/16/2008 12:12 PM
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The two 401k solo companies and those two help center sites all say the same thing:

PENSCO TRUST:
What if I also participate in another plan or SEP-IRA?
If in any year you make 401(k) deferrals under any other plan (even one of an unrelated employer), those deferrals will reduce the amount of 401(k) deferrals you may make under your PENSCO Trust Solo(k) in the same year. This is because your annual 401(k) limit ($15,000, or $20,000 if you will be at least age 50, in 2006) is an aggregate limit for all 401(k) plans in which you participate.

401(k) deferrals, matching or other contributions made under the plan of an unrelated employer will not affect the profit sharing contribution limit for your PENSCO Trust Solo(k) plan. However, if your business or a related one maintains another qualified plan or SEP-IRA, contributions made to it may reduce your PENSCO Trust Solo(k) profit sharing contribution limit. Consult your third party plan administrator or other pension professional to determine how the reduction rules may apply in your case.


401k BLOG:
If you have a regular 401(k) through an employer and have some freelance earnings on the side, then your solo 401(k) limits will be reduced by any contributions you’ve made to a regular 401(k). But that only affects the first $15,500 of contributions, not the 20% of business income. So if you contributed $10,000 to a regular 401(k) through your employer, for example, then your solo 401(k) contributions will be limited to $5,500 plus 20% of your business income.

401k help center:
Contributions to a one-person 401k plan are based on revenue generated by your business. If you participate in any other plan, with another employer, you must coordinate one-person 401k contributions with that plan so you meet the IRS limits described below.

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Author: eugenie4u Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 23297 of 25223
Subject: Re: Roll $$ into 401k/403b to BORROW against? Date: 4/16/2008 12:14 PM
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401kpsp:

Can I contribute to a single person 401K Plan for my sideline business if I participate in another employer-sponsored plan?
You can contribute to a single person 401K Plan. However, if you make salary deferral contributions to another employer's plan, you must count those amounts along with any deferrals made to your single person 401K when determining the maximum deferrals that may be contributed for the year. This aggregation is not necessary for employer contributions.

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