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Subject:  Re: Transfering 403 Account Date:  4/20/1999  5:57 PM
Author:  TMFPixy Number:  10065 of 98496

Greetings, Dlee09. and welcome. You asked:

<<I currently work for a non-profit organization. In the upcoming month I am going to change jobs. Can I transfer the money from my 403B account into a self-directed IRA?? >>

The 403b is a qualified retirement plan. When you leave your job you may transfer qualified retirement plan proceeds to a traditional IRA at a mutual fund, broker or other IRA provider of your choice. Several things will be at play here. First, your plan may have restrictions as to when this transfer may occur. You'll have to check with your benefits folks about that. Second, to get this money to the regular IRA with no possibility for a tax problem, you should arrange for a direct transfer of all proceeds to your IRA. This is known as a custodian-to-custodian transfer. Both your plan custodian and future IRA custodian know how to do this and can guide you through the process. Ask them. You do not want to receive a check made out in your name for the pension proceeds. Why? Because if you do, the plan by law must withhold 20% for possible income taxes on the sum distributed. To complete a 100% rollover of the pension money, you must come up with the missing 20% from other resources, add that to the 80% you got from the plan, and deposit those proceeds into the IRA. Fail to do so, and at the end of your tax year the Infernal (sic) Revenue Service will call the missing 20% a distribution. You will be taxed on that money and, if you're younger than 59 1/2, assessed an additional excise tax of 10% for a premature distribution of retirement money. Arranging for a direct transfer of the pension money avoids that. You don't see the check, nothing is withheld for taxes, and 100% gets to the IRA without a problem.

One last item: If there is even a remote possibility that at some point in the future you may wish to transfer this money to a new employer's qualified retirement plan, do not mix these funds with any other IRA you may have or add anything else to the rollover IRA you establish for these funds. That way the proceeds and all earnings retain their eligibility for a later transfer to a new employer's plan. Put them in an existing IRA or add any other funds to this sum, and the IRS will say the money is now "tainted" and ineligible for a rollover to an employer's plan. To Fools, this is not an important point. We believe we can invest these funds to earn more than we could in an employer's plan anyway. Nevertheless, some folks find retaining this transfer eligibility desirable. Therefore, forewarned is forearmed.

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