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401a and 403b Consolidations

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  • Avatar Larry Ragman 
    Participant
    Status: Other Professional
    Posts: 522
    Joined: 08/30/2018

    Although I am a few years out, I am starting to plan my account set up for retirement. A work colleague suggested combining the 403b (my contributions) and 401a ( employer contributions) accounts for simplicity. One other stated value of combining both into the 401a account was that it has a guaranteed stable value fund option for near cash. This is an interesting but not compelling advantage. Any thoughts about whether or not combining the 401a and 403b accounts makes sense?

    I am particularly interested if there are any thumb rules or planning factors to be aware of? As an example of what I mean by planning factor, I intend to take the Roth portion of my 403b and transfer it to my individual Roth in order to avoid the RMD required of Roth funds in the 403b. So, anything like that relative to 401a and 403b accounts? For example, can I only use the 403b to clear my traditional IRA in support of backdoor Roth conversions, or can I do that with the 401a as well? Or, does one account type offer better asset protection than the other? Obviously I’ll look at fee structures, but I think the ERs are about the same and I have substantially the same Vanguard 2025 fund in both. (The 401a’s 2025 fund is actually set up in an investment trust…I’m not sure why.)

    Thanks!

    #206344 Reply
    Avatar JBME 
    Participant
    Status: Spouse
    Posts: 457
    Joined: 03/26/2018

    I think you need to read the summary plan documents for each plan to make sure, but I think you can usually roll both your 403b and 401a plans into your own IRA when you retire, and just combine them into one. I wouldn’t roll the 401a into your 403b or visa versa…just into an IRA, presumably at vanguard. And then start your roth conversions. Clearly any roth money you have in the 403b should roll over to the Roth IRA when the rollover happens.

    #206347 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 7794
    Joined: 01/09/2016

    Yes, you’ll be able to roll both into your IRA at retirement. I would read the SPDs (if available) to see if you can make an in-service transfer of the 403b to 401a. You won’t be able to do so after retirement.

    You won’t be able to continue making contributions to your IRA after retirement unless you continue to have some sort of earned income, so the IRA r/o may be inconsequential.

    You also need to check the asset protection laws in your state to learn if IRAs are protected assets. If not, it may be preferable to leave the accounts behind with your employer (if allowed) until age 70.5.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #206351 Reply
    Liked by Larry Ragman
    Avatar Larry Ragman 
    Participant
    Status: Other Professional
    Posts: 522
    Joined: 08/30/2018

    I think you need to read the summary plan documents for each plan to make sure, but I think you can usually roll both your 403b and 401a plans into your own IRA when you retire, and just combine them into one. I wouldn’t roll the 401a into your 403b or visa versa…just into an IRA, presumably at vanguard. And then start your roth conversions. Clearly any roth money you have in the 403b should roll over to the Roth IRA when the rollover happens.

    Click to expand…

    Yes, both the 401a and 403b can be rolled to the IRA. I had originally meant to keep the money in the employer plans because the fees are modestly higher in the IRA since the employer plans use institutional shares. But the differences are small, and I could probably make up any delta by breaking up the target retirement funds to the constituent Admiral funds. Thanks for the thought.

     

    #206353 Reply
    Liked by Larry Ragman
    Avatar Larry Ragman 
    Participant
    Status: Other Professional
    Posts: 522
    Joined: 08/30/2018

    Yes, you’ll be able to roll both into your IRA at retirement. I would read the SPDs (if available) to see if you can make an in-service transfer of the 403b to 401a. You won’t be able to do so after retirement.

    You won’t be able to continue making contributions to your IRA after retirement unless you continue to have some sort of earned income, so the IRA r/o may be inconsequential.

    You also need to check the asset protection laws in your state to learn if IRAs are protected assets. If not, it may be preferable to leave the accounts behind with your employer (if allowed) until age 70.5.

    Click to expand…

    Thank you Johanna, these are helpful thoughts. On the 403b to 401a question, I’m told I can as part of the retirement process before I go out the door. But I had not realized I could not after retirement.

    The retirement income issue re IRA contributions and backdoor Roth r/o is a fair point. While I do plan some adjunct earned income for a few years at least after my retirement from the current job, MAGI may be low enough that I can directly contribute to Roth’s if I want to do so.

    I will definitely look into the asset protection laws for my state as well. Quick follow on: if I retire to another state, am I correct to assume the asset protection laws for that state will then apply? Not necessarily that way for state SPIA guarantees, I know.

    #206354 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 7794
    Joined: 01/09/2016
    I will definitely look into the asset protection laws for my state as well. Quick follow on: if I retire to another state, am I correct to assume the asset protection laws for that state will then apply? Not necessarily that way for state SPIA guarantees, I know.

    Click to expand…

    That is correct, afaik, but I am not an attorney.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #206357 Reply
    Avatar spiritrider 
    Participant
    Status: Small Business Owner
    Posts: 1793
    Joined: 02/01/2016

    For asset protection purposes, the 401a is guaranteed to be an ERISA Title I qualified plan, but most 403b plans are not. You would have to check with the 403b plan administrator. Only ERISA Title I qualified plans receive full anti-alienation creditor protection. They both receive along with Rollover IRAs unlimited federal bankruptcy protection

    The creditor protection for non-qualified 403b plans, all 457b plans, all pre-tax IRAs and all Roth IRAs is provided at the state level. There are many states that provide full asset protection to IRAs (~90%), Roth IRAs (~80%) and Inherited IRAs (~50%). I don’t know what percent of states provide full asset protection for 403b and and 457b plans. 403b and 457b plans are for government employees (especially teachers) and certain non-profits. Considering their power in most states, I would be inclined to think it is as high if not higher than IRAs.

    You should check with your specific state if this is important to you. A notable state that only protects amounts “reasonably necessary for support”, is CA. That “reasonable” does not cover the lifestyle you are accustomed to, but rather what the individual court determines is reasonable. And yes, state level liability/protection is based on your domicile and additionally can include anywhere you own real property.

     

    #206371 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 7794
    Joined: 01/09/2016

    For asset protection purposes, the 401a is guaranteed to be an ERISA Title I qualified plan, but most 403b plans are not. You would have to check with the 403b plan administrator. Only ERISA Title I qualified plans receive full anti-alienation creditor protection. They both receive along with Rollover IRAs unlimited federal bankruptcy protection

    The creditor protection for non-qualified 403b plans, all 457b plans, all pre-tax IRAs and all Roth IRAs is provided at the state level. There are many states that provide full asset protection to IRAs (~90%), Roth IRAs (~80%) and Inherited IRAs (~50%). I don’t know what percent of states provide full asset protection for 403b and and 457b plans. 403b and 457b plans are for government employees (especially teachers) and certain non-profits. Considering their power in most states, I would be inclined to think it is as high if not higher than IRAs.

    You should check with your specific state if this is important to you. A notable state that only protects amounts “reasonably necessary for support”, is CA. That “reasonable” does not cover the lifestyle you are accustomed to, but rather what the individual court determines is reasonable. And yes, state level liability/protection is based on your domicile and additionally can include anywhere you own real property.

     

    Click to expand…

    That was a gem. I just added it to my special word doc titled “spiritrider advice”. It’s #35 on the list.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #206385 Reply

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