Complex retirement-fund rules make job change more stressful; Dollars & Sense


I'm changing jobs, from a traditional industry job [where] I had a 401(k) plan, and I moved to a job in the education sector, and they have a 403(b). I've been told by my employer that I cannot transfer my funds from my 401(k) to my 403(b). If I leave the money with the present plan holder, I can no longer borrow against it. So basically what happens is, I get a good return because it's a good plan, but it's locked up and I can't touch it for umpteen years. On the other hand, if I roll it over into an IRA, I'm not sure I would be able to borrow [from] it. So, I'm wondering what's the best plan as to how to make it more flexible?

L. S., East Greenwich, R.I.

The rules that govern retirement-savings plans in the workplace are ridiculously complex and frustrating. Changing jobs can be stressful, and you've got more important things to worry about than how our nation's arcane pension laws work.

Unfortunately, the reforms have been caught up in a broader political debate. As for the points you raised in your question to MoneyLine, here are some answers. They were provided by Roger G. Geraets, consulting manager for Universal Pensions Inc. of Brainerd, Minn., a national retirement plan consulting firm, and Dee Lee, a certified financial planner in Harvard, Mass., and co-author of "Let's Talk Money: Your Complete Personal Finance Guide" (Chandler House Press; $16.95; 411 pages):

If you keep your money in the 401(k), you can't borrow from it. If you move it to an IRA, you can't borrow from it. If you really want to borrow from your retirement savings, check with your new employer. Most 403(b) plans don't allow borrowing, but some do, Lee said. If you're happy with the 401(k) plan, you can let it sit and take it out when you're ready to retire. By law, if you have more than $5,000 in your 401(k) account, you can leave it there until retirement, Lee said.

If you'd like more flexibility, you can move the money to an IRA. In general, IRAs offer far more investment options than do 401(k) plans, Geraets said. With a little work, you can also find an IRA that charges little or nothing in annual maintenance fees and low annual expenses.

If you move the money from the 401(k) to an IRA, have it transferred directly from the 401(k) straight into an IRA. That way, you'll avoid all sorts of messy tax problems.

If you're really stuck for cash, you may be able to withdraw money from your 401(k) plan before retirement, but check the plan's rules first to see under what conditions withdrawals are allowed.

For more information on 403(b) plans, read Internal Revenue Service Publication 571, "Tax-Sheltered Annuity Programs for Employees of Public Schools and Certain Tax-Exempt Organizations." For a copy, visit your local IRS office, call the IRS at 800-829-3676 or contact the agency's World Wide Web site at its new Internet address: http: //

Copyright © 2021, The Baltimore Sun, a Baltimore Sun Media Group publication | Place an Ad