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I changed just last year and want to rollover a few old 401k and 403b accounts to Fidelity, which handles my 403b with my new employer. My motivation is just convenience and ease of keeping track of things. Am wondering about the pros and cons of rolling into the new 403b itself, vs. setting up an IRA with Fidelity. Are there pros/cons that I am not thinking of (below)?

Pros of IRA: more investment options, ability to withdraw in a desperate situation (highly unlikely, plus my 403b has loan options)

Pros of 403b: access to a few lower-cost funds that are plan-specific (life cycle funds), more protection from bankruptcy/lawsuit (not a big concern), no transaction fees

I was assured I could manage the IRA through the same login as my retirement plan, so they would be equally convenient. I can't think of a major reason to go one way or the other... flexibility is always good, so maybe I should go with the IRA?

Thanks for any advice
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I can't think of a major reason to go one way or the other... flexibility is always good, so maybe I should go with the IRA?

How close are you to 55? Are you planning on staying with this employer until you reach 55? 401(k)/403(b) plans give you the ability to withdraw without penalty or having to do 72(t)/SEPP withdrawals as long as you 'separate from service' in or after the year you turn 55. With an IRA, you don't have this option until you are 59 1/2. So if you plan on retiring between age 55 and 59 1/2, there may be some advantage to having the money in a 401(k) or 403(b), rather than an IRA.

AJ
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I don't know about 403b's but a major drawback of 401k's is that you might be happy with your choices within the new plan now but they can change to a new provider or change the available options at any time.

I have had this happen with a 401k where they went from a good selection of Fidelity mutual funds to overpriced "separate accounts" with an insurance company. Since it is a "separate account" you cannot get a prospectus and there is very little information available about how they operate. Fortunately there are a few low cost index funds (really "separate accounts") that seem to track their indexes OK so I am able to mostly able to work around the rest of the poor selections.


You also probably would not be able to roll the money into a Roth account from the 403b if you ever wanted to.

Greg
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You also probably would not be able to roll the money into a Roth account from the 403b if you ever wanted to.

Why do you say this? A 403(b) is a 'qualified plan', same as a 401(k) is a 'qualified plan'. You can convert directly from a 'qualified plan' to a Roth IRA - see IRS Pub 590. You will owe taxes on the conversion, whether it's from a 401(k) or a 403(b). But there is no issue with doing the conversion from a 403(b) rather than a 401(k).

AJ
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...You also probably would not be able to roll the money into a Roth account from the 403b if you ever wanted to.

Why do you say this? A 403(b) is a 'qualified plan', same as a 401(k) is a 'qualified plan'. You can convert directly from a 'qualified plan' to a Roth IRA - see IRS Pub 590. You will owe taxes on the conversion, whether it's from a 401(k) or a 403(b). But there is no issue with doing the conversion from a 403(b) rather than a 401(k).

AJ ...


"ever" was the wrong word.

I should have said "while you are still working there and don't qualify for an in-service withdraw". I assumed that once the money was rolled into an 403b or 401k that it could not be rolled out again just like new contributions. Please let me know if that was an incorrect assumption.

I thought of one more possible plus for the 403b if it is like a 401K that is that you may be able to get a loan from the 403b but you can't from the IRA.

Greg
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I should have said "while you are still working there and don't qualify for an in-service withdraw". I assumed that once the money was rolled into an 403b or 401k that it could not be rolled out again just like new contributions. Please let me know if that was an incorrect assumption.

You're right - it was the "ever" that I got stuck on. You are correct - once rolled into a 401(k) or 403(b), the ability to roll money over to a Roth IRA is limited based on the plan withdrawal rules. However, within the last couple of weeks, I seem to remember seeing that there were some provisions to allow people to roll from pre-tax accounts to Roth accounts within a 401(k) or 403(b). Of course, your 401(k)/403(b) would have to offer a Roth option, which not all do. And I'm not sure if those provisions were actually implemented, or if it was just speculation. Now, if I could only remember where I saw that......

AJ
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Others have pretty well covered the pros and cons, but, I wanted to question your statement that the "403b has access to a few lower cost funds". Are you sure that is correct? Typically there are administrative fees associated with employer plans that are not imposed by a personal IRA account. The lawsuit protection is dependant upon state laws as I understand it. Is it true in your state?
Personally I would lean toward the IRA unless the lawsuit protection or the age 55 and out is very appealing.

Bob
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Thanks for all the input! I am 41, but have university tenure so I will likely stay with my employer until age 65. I will look into the lawsuit protection for my state, but overall it sounds like IRA might be preferable for the flexibility in investment options.
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