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Roll Over 403(b) to an Individual 401K?

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  • Roll Over 403(b) to an Individual 401K?


    I started a new position and noticed some of my retirement options seemed rather expensive. I work for a county hospital and have access to a 403(b), 457 and a defined benefit pension plan. The funds available in my 403(b) and 457 are nearly all 'American Funds' which, based on what I've read, are all actively managed funds. The total annual operating expenses for all the funds available to me are all between 0.93%-1.49% with the majority funds having expense ratios just above 1%.
    I would ideally like to invest in low cost index funds, but it appears there are none to select from. I do moonlight on occasion in some area hospital emergency departments.  Is it possible to start a Individual 401k this year using that income and then roll-over my 403(b) or 457 periodically into the Individual 401k (with Fidelity or Vanguard) to bypass the poor funds and expenses in my employer sponsored plan? If I decide to no longer moonlight in the future does that change the opportunity to do this? Pros and cons of doing this?

  • #2
    no, once you leave the employer however you can.



    • #3
      It's unlikely your plan allows for in-service withdrawals or rollovers, which is what it would take to enable that.

      Even with the high expense ratios, it is probably still worth the tax deduction to contribute to the 403(b) (esp if matched) and 457. You should still use your individual 401(k), though, and depending on how much you make, might consider using it for your employee contribution *if* your self-employed income is predictable, since 403(b) contributions can (probably) only be made by salary deferral.


      • #4
        Employee deferrals to qualified plans (SIMPLE IRA, 401k, 403b) are not eligible for in-service rollover prior to age 59 1/2.

        A qualified plan may but is not required to allow in-service rollovers of vested employer contributions, previously rolled-in assets and employee after-tax contributions prior to age 59 1/2. It is unlikely your 403b offers this unless they offer employee after-tax contributions.

        In-service rollovers of any 457 plan assets is prohibited prior to age 70 1/2.

        As stated by DMFA, your best option if you have sufficient moonlighting revenue and no 403b match, is to make your employee deferral limit through a one-participant 401k plan.

        You should probably take advantage of the 457b even with those expense ratios. You could do far worse than American Funds at 1%. The same is true for the 403b if you are unable to go the one-participant 401k route.

        While 1% expense ratios are not ideal, they are still better than taxable until you get well above 2%.