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Transfer old 403b to solo 401k or current employer 403b?

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  • Transfer old 403b to solo 401k or current employer 403b?

    I have about $250k in a previous employer's 403b plan. I have the option of opening up a solo 401k due to some 1099 income (it's only a few thousand dollars a year, so not really worth it just to defer a couple of bucks) which I could do if I wanted to transfer the money there. Alternatively, I could transfer it to my current workplace 403b plan which has good low-cost investment options.

    I was planning to do the solo 401k route, figuring the following advantages:
    -Lowest cost of investing
    -Keeps money away from employer plan in case it changes in the future
    -Can defer a small amount of 1099 income
    -Etrade offers bonus of a few hundred dollars

    But now am seeing the following disadvantages:
    -More paperwork and accounts to track
    -Yearly IRS filing due to balance over 250k

    It may seem small but it's just another thing, and in general I'm trying to simplify my financial life. Any thoughts or additional things that maybe I did not consider but should?

  • #2
    Also less protection.
    simple = current employer.

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    • #3
      A one-participant 401k is not an ERISA qualified plan, but most 403b plans are also not ERISA qualified plans. One-participant 401k vs 403b creditor protection is subject to the OP's specific state's laws. While not exclusive, generally only 403b plans with employer contributions to the 403b plan are ERISA qualfied. The OP should probably verify their 403b plan's ERISA status before rolling in any funds.

      Although minor, it may be more convenient to rollover to the OP's 403b to avoid having to file Form 5500-EZ.

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      • #4
        A 5500-EZ is extremely easy to file.
        Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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        • #5
          Originally posted by spiritrider View Post
          A one-participant 401k is not an ERISA qualified plan, but most 403b plans are also not ERISA qualified plans. One-participant 401k vs 403b creditor protection is subject to the OP's specific state's laws. While not exclusive, generally only 403b plans with employer contributions to the 403b plan are ERISA qualfied. The OP should probably verify their 403b plan's ERISA status before rolling in any funds.

          Although minor, it may be more convenient to rollover to the OP's 403b to avoid having to file Form 5500-EZ.
          love it.

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          • #6
            also worth noting that rollover funds that go to 403b wouldn't be stuck there, should be eligible for rollover out of the plan at any point if you changed your mind

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            • #7
              “It may seem small but it's just another thing, and in general I'm trying to simplify my financial life.”

              Then do the simple thing. Any advantage making it more complicated?

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              • #8
                Originally posted by jacoavlu View Post
                also worth noting that rollover funds that go to 403b wouldn't be stuck there, should be eligible for rollover out of the plan at any point if you changed your mind
                I must admit that's news to me.
                Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                • #9
                  Exactly how much money do you make out of this 1099 income?
                  Over the long haul, I wouldn't dismiss the benefits of the Solo 401k. Especially if you set it up to allow after-tax contributions and Roth rollovers.
                  Read more on the mega backdoor roth threads if you are not familiar with this.

                  Comment


                  • #10
                    Originally posted by jfoxcpacfp View Post

                    I must admit that's news to me.
                    rollover funds are typically eligible for distribution at any time, at least in a 401k. Worth checking the summary plan description to make sure.

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                    • #11
                      Originally posted by jacoavlu View Post

                      rollover funds are typically eligible for distribution at any time, at least in a 401k. Worth checking the summary plan description to make sure.
                      So, not asking you to prove you're right, but can you point me to a reg? This is definitely interesting to me as we have never understood that this was possible. Maybe Michelle is aware, but I doubt it.
                      Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                      • #12
                        Originally posted by jacoavlu View Post

                        rollover funds are typically eligible for distribution at any time, at least in a 401k. Worth checking the summary plan description to make sure.
                        Would that typically be just the principal rolled over? Would the gains typically be restricted until 59.5? (or 55 if you can use the r/o 55)?

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                        • #13
                          Originally posted by Lithium View Post

                          Would that typically be just the principal rolled over? Would the gains typically be restricted until 59.5? (or 55 if you can use the r/o 55)?
                          I don't believe so, I believe that gains on the rollover subaccount would also be eligible for distribution. But don't quote me on that.

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                          • #14
                            In-service withdrawal/rollover of employee deferrals are prohibited prior to age 59 1/2. IRS regulations often only tell you what can not be done, not what can be done. All other contributions including inbound rollovers are distributable if explicitly allowed in the plan document.

                            As pointed out by jacoavlu rollover contributions are usually, but not always distributable without restriction in plan documents. A typical SPD entry.

                            Q3. Can I withdraw money from the Plan while I am still employed?
                            The Plan is designed to help you build an account that will help support you during your retirement years. However, you will be able to take certain distributions from the Plan while you are still working for your Employer, as indicated below.
                            • In-Service Distributions
                              • You may request a distribution of your rollover and transfer contributions at any time. You may also request a distribution of your Deferrals when you die, you become Disabled, the Plan terminates, or you reach age 59½.
                            The distributable nature of contribution type also applies to any earnings. In fact, with the exception of pre-87 employee after-tax contributions. Earnings are distributed pro-rata with the contribution.

                            Age 55 is an exception to the 10% early withdrawal penalty for distributions after separation. That separation must occur >= age 55. An in-service withdrawal/rollover by definition is not eligible for the exception.
                            Last edited by spiritrider; 02-27-2020, 10:22 AM.

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                            • #15
                              Originally posted by spiritrider View Post
                              In-service withdrawal/rollover of employee deferrals and non-vested employer contributions are prohibited prior to age 59 1/2. IRS regulations often only tell you what can not be done, not what can be done. All other contributions including inbound rollovers are distributable if explicitly allowed in the plan document. As pointed out by jacoavlu rollover contributions are usually, but not always distributable without restriction in plan documents.

                              The distributable nature of contribution type also applies to any earnings. In fact, with the exception of pre-87 employee after-tax contributions. Earnings are distributed pro-rata with the contribution.

                              Age 55 is an exception to the 10% early withdrawal penalty for distributions after separation. That separation must occur >= age 55. An in-service withdrawal/rollover by definition is not eligible for the exception.
                              Very helpful as always. What surprises me about this is it seems that there is nothing to stop someone from taking a new job, rolling over retirement assets from their old job to the new plan, and then withdrawing the rolled over assets within a matter of months? Assuming it is allowed by the new plan itself.

                              Normally someone who wanted to pull the FIRE ripcord would have to consider a lot of other complicated strategies to get the money out early (Roth conversion ladders, rule of 55, 72(t), etc), but that seems like another possible loophole.

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