Separate IRA accts. for mulitple 401k & 403b rollovers ???

catch22

A fairly common situation I suspect; as different 401k/403b vendors move into company plans over the years. The result being that more than one account may be in place for the employee. The folks (married couple) with the question were not forced to transfer the existing plan into the new plan.

Retirement is near for them. They already have Roth IRA's in place with Fidelity and are satisfied with Fido.

The question is whether to move the two 401k's and multiple 403b's into separate/multiple rollover brokerage IRA accounts with Fideltiy for each of them, or move both 401k's into one rollover IRA and the 3, 403b's into one rollover IRA???
Is there anything that is of special consideration for one direction or the other with this?

Thank you in advance for your thoughts.

Catch

MikeM

Hard to follow your post. What is a fund vendor? Is it a brokerage like Schwab or Fidelity? A specific fund house? Your "question" paragraph is kind of hard to follow. At least for me.

Maybe the confusion is just on my part. But if I get your gist, simplicity, rolling all retirement accounts into one is what I would do.

catch22

@MikeM

You're right........that was a real crappy write. I did a re-do. I've been outside and too cold.
Basically, should each 401k have its own rollover IRA account or just rollover both 401k's into one Fidelity IRA account? Same applies for the 3, 403b's.

Thanks Mike, for keeping me in line.
Catch

JohnChisum

I rolled over a 403b account to a fund company and later when the time came to roll over a pension lump sum, I was told it had to be a separate account so thats what I did. Same fund company but chose brokerage instead. Is there not some regulations of 401 and 403 that make it not possible to combine later on?

fundalarm

I like to have fewer accounts if I can help it (per beneficiary of course). Multiple accounts make sense during roth conversions. Then if one converted account loses a lot of value during the following 12-18 months, that particular conversion could be undone. Rollovers can all live together happily ever after and enjoy lower fees and transaction costs that go with larger investments.

bee

One thing that is lost in the rollover would be the loan provisions 401k and 403b plans have.

"Loans from 401(k) plans. Some 401(k) plans permit participants to borrow from the plan. The plan document must specify if loans are permitted. A loan from the 401(k) plan is not taxable if it meets the criteria below.

Generally, if permitted by the plan, a participant may borrow up to 50% of his or her vested account balance up to a maximum of $50,000. The loan must be repaid within 5 years, unless the loan is used to buy the participant’s main home. The loan repayments must be made in substantially level payments, at least quarterly, over the life of the loan.

The participant must reduce the $50,000 amount, above, if he or she already had an outstanding loan from the plan (or any other plan of the employer or related employer) during the 1-year period ending the day before the loan. The amount of the reduction is the participant’s highest outstanding loan balance during that period minus the outstanding balance on the date of the new loan."

I also remember reading that these plans have additional protections (compared to traditional IRAs) against creditors, say in the case of a foreclosure or a lawsuit.

Also, penalty free early withdrawal are allowed so long as the 401k / 403b owner retires at age 55 or older (instead of having to wait until 59.5).

"The 10% tax will not apply if distributions before age 59½ are made in any of the following circumstances:Made to a participant after separation from service if the separation occurred during or after the calendar year in which the participant reached age 55."

Might be worth further research before pulling the trigger.

IRS handbook on 401k plans:
irs.gov/Retirement-Plans/Plan-Sponsor/401%28k%29-Resource-Guide---Plan-Sponsors---General-Distribution-Rules

msf

A rollover is a rollover is a rollover. In theory, you should be able to combine all of them (all the 401ks, all the 403bs together). That doesn't mean that everyone understands this, and you may face someone that says you have to have a separate account. (But then you can immediately combine the accounts to keep that person happy and still reach the same end.)

Regarding beneficiaries - that has got nothing to do with whether you roll the accounts over to one IRA or many. You can slice and dice as you wish. Having a single IRA with multiple beneficiaries (assigning varying percentages as you wish) solves a problem that can happen with one IRA per beneficiary - if the assets in one IRA grow faster than another, this throws off the percentages.

But you also have to be careful with what you want to happen if one of the beneficiaries dies. If you want that share of the money to go to, say, the person's surviving kids, then it may be better to have a separate IRA for that beneficiary, and name his kids as contingent beneficiaries.

If you want the assets to go to the surviving beneficiaries if one predeceases you, then an IRA with multiple beneficiaries can achieve this.

msf

To bee's comment that you might want to consider not rolling over the retirement assets at all (but leaving the 401ks and 403bs):

- Loans must be repaid shortly after separation from service, so the loan provision in some retirement plans is worthless after the imminent retirement;

- The ability to take penalty-free withdrawals at an earlier age is slightly more expansive than bee described. Rather than having to be 55 when you retire (separate from service), you can take penalty free withdrawals so long as you will be55 in the year you leave. For example, if your 55th birthday is next November, and you retire in January, you can withdraw retirement assets as soon as you retire without penalty. That's what is stated in the bold font rules that bee quoted.

Another reason for doing the transfer to an IRA is that the 401k may not have a Roth option, or if it does may not allow Roth conversions. If you're interested in converting those assets, the only way may be to transfer to an IRA.

(You can do the conversion directly into a Roth IRA without first transferring to a traditional IRA, but to preserve your ability to "undo" as fundalarm described, you need to do the conversion from a traditional IRA, not from an employer plan - those conversions can't be "undone". )

bee

Another term that might be important to apply to this discussion (depending on whether the owner wants to maintain holdings that, if purchased after the rollover, might incur high minimums, loads or might even be closed to new investors) is the term "in kind".
Rolling over shares "in kind" means that the shares you own in the 401k/403b move "in kind" to the new IRA. This basically means you are not liquidating shares to cash and later having to repurchase these same holdings later once the rollover is completed.

msf

Many families will allow you to open IRAs in closed funds if you do a rollover in kind of shares in that fund.

My experience with Vanguard (Roth conversions) suggests that it will not allow you to open an IRA in a closed fund with an in-kind rollover (even though those are shares of the closed fund). It will, however, let you move (rollover) those shares in kind into an existing account of the closed fund in the receiving IRA.

Fidelity and T. Rowe Price are much more flexible. Can't talk about the other 9,997+ fund families floating around.

MrRuffles

msf said:

A rollover is a rollover is a rollover. In theory, you should be able to combine all of them (all the 401ks, all the 403bs together). That doesn't mean that everyone understands this, and you may face someone that says you have to have a separate account. (But then you can immediately combine the accounts to keep that person happy and still reach the same end.)

The one caveat is to make sure to keep rollover accounts from employer plans separate from non-rollover accounts if you have any intention of moving them back into another employer plan later on.

msf

Old habits die hard. Along with making the rules for 401(k)s, 403(b)s, and 457s more uniform, the 2001 tax changes virtually eliminated the need for conduit IRAs. There is an exception, but it applies only to people born before 1936.

However, I was alluding to this 2001 rule change (among others) to when I suggested that some custodians/administrators aren't familiar with the changes (or haven't updated plan docs), and will thus insist on things not required by law. One would hope that after a dozen years, that isn't still a problem.

From IRS, 2002 Tax Changes: IRAs/Retirement Plans, FS-2003-04, January 2003 (last reviewed or updated August 18, 2012):

Permissible Rollovers

IRA assets may be rolled over to employer plans even if they did not come from another employer plan. Employees who roll over employer plan distributions into an IRA no longer have to keep that IRA separate – a “conduit IRA” – in order to do a future rollover to another employer’s plan. However, taxpayers born before Jan. 2, 1936, who want to keep special capital gains and ten-year averaging benefits will need a conduit IRA to move assets from one employer plan to another.

rono

Howdy all,

I've been moving 401's to rollover IRAs since early 2000 (yeah, before the dot.com meltdown).

The board has covered all the nasty little details, so I'll go back to the original question.

If they're happy with fido move one set of accts (e.g. 401's) to a rollover IRA there. Move the 403's to a rollover IRA at Price or VG or any of the full service no houses.

They get simplified accounting and management and yet get a little diversification.

That said, depending up the sizes of the various accts, you might just want to lump them all together and call it good.

peace,

rono for KISS