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My wife currently has two retirements plans with the same fund family: 401k & 403b. Can she roll the 403b into the 401k?

She worked for a non-profit company, which offered the 403b plan. The company was then bought out and then offered a 401k. Now she has both plans with the same family of funds. When she logs on to the account both plans come up. The 403b is sitting there while the 401k is getting monthly contributions. Can you roll the 403b into the currently active 401k account?

Feb 03, 2015 by Brian from Omaha, NE in  |  Flag
5 Answers  |  8 Followers
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2 votes

She can indeed roll her 403(b) into her 401(k) provided the 401(k) plan will accept inbound rollovers.

To check that, she should speak with HR or review the Summary Plan Description (SPD) for the 401(k) plan to make sure it's permitted.

Hope that helps. All the best!

1 Comment   |  Flag   |  Feb 03, 2015 from Clackamas, OR
Brian

Thank you! I will have her check into this!

Flag |  Feb 03, 2015 near Omaha, NE

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2 votes

Larry is correct. 401k plans can receive rollovers from most types of retirement plans. This chart is very helpful in identifying allowable rollovers: http://www.401khelpcenter.com/pdf/Rollover_Chart.pdf

However, before making a change, I would suggest taking a closer look at both plans. If the plans themselves were of different sizes, they likely have different expense ratio funds. As retirement plan sizes grow (from your employer's standpoint), the plan provider (the company you’re logging into to view your retirement accounts), can offer lower cost funds. So if the older non-profit was a 300 person company where the aggregate plan size was $10 million or more, the fund expenses are likely very low (under 1% on average). Now if the company she started working for is small, then her fund expenses may be significantly higher and may even include a “wrap fee”. This could mean that the expenses on the 401k plan could be more than double those of the old plan.

You should also take a look at what the cash alternatives are for each plan. Often, older 403b plans have rich “guarantee” accounts paying 3-4% while a smaller 401k plan may only offer 1-2% or worse, a plain money market.

Consolidating plans definitely simplifies things, but please do take a closer look at both plans to see if there may be reasons to keep the 403b plan as is. Also, keep in mind that when you have an outside retirement account (rolling to an IRA), you have two buckets of funds to work with and much more flexibility. You could convert the IRA to a ROTH and even be able to access principal from the ROTH without penalty (in an emergency). Leveraging your options is always a good part of your financial plan as most 401k plans don’t allow for in-service distributions outside of loans.

Feel free to contact me if you have any additional questions. I hope this is helpful.

2 Comments   |  Flag   |  Feb 04, 2015 from Manhattan, NY
Brian

The 403b is just sitting there. No money is going into the account for the last number of months because the company is now offering a 401k. All money is currently being placed in the 401k. That's why i was thinking of consolidating.

Flag |  Feb 04, 2015 near Omaha, NE
Jared N. Larsen, CFP®, AIF®

Understood. I would still look into the following:

• What are the expenses of the similar funds in the 403b vs. 401k?
• Does the 403b plan offer a high yielding “guarantee” or “fixed” account?
• Do you have any desire to have a ROTH IRA as part of your planning?
• Are the expenses of the 401k (fund expenses and any wrap admin fees) lower than if she just rolled the 403b plan into an IRA and either managed it herself or hired an advisor to manage it?

Once you roll those funds into the 401k, you give up the flexibility of having another account, but you do have the added simplicity of one less account.

Food for thought.

Flag |  Feb 05, 2015 near Manhattan, NY

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1 vote

While she most likely can Roll the 403b into the 402k, I would ask why?! There are so many other options that may provide for better diversification and allocation outside of the 401k. More times than not, it is my belief that it is better to Roll it out to an outside IRA for those reasons. Now, if you do roll it out to an IRA, you will lose the ability to take Loans against it if her current 401k allows for that, but I also don't think loans are a good thing except for dire emergencies.

Good luck and feel free to always circle back with any other questions!

Comment   |  Flag   |  Feb 04, 2015 from Bloomingdale, IL

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1 vote

Brian,

There are two main considerations for your question: first, a rollover transaction as you are describing is allowable per IRS regulation. Second, as Larry mentioned above the 401(k) Plan of the new employer (purchasing company) has a Plan document that governs how that plan is run and details what is allowable. Plans do not have to accept rollovers but many today do. You should check with the new employer's HR department or ask Fidelity for a copy of the Summary Plan Description. Also, because there was a change of control, usually as part of the deal certain concessions are made in what is called a change of control agreement. In that document, differences in benefits are usually addressed and the 401(k)/403(b) issue may have been addressed there as well.

I hope this is helpful, Mark

Comment   |  Flag   |  Feb 04, 2015 from Vienna, VA

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Peter C. Karp Level 20

Brian,

I agree with the other advisors in that your wife has a couple of different options available to her. The IRS does allow her to roll the monies from her 403b account to the 401(k) account she is currently contributing to but she needs to confirm with her employer that the 401(k) plan allows for this type of rollover. Obviously this makes managing her investments easier if they are all in one account. She can also leave the monies in the 403b and should look at the costs as Larry mentioned because she may be paying less in the 403b account. The third alternative would be to roll the money from the 403b into an individual IRA which may give her even more investment choices than she has in either of the current plans, but could also be more expensive. It would be a good idea to consult with a financial advisor to determine the best options based on your financial goals and personal financial situation.

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Comment   |  Flag   |  Feb 09, 2015 from San Francisco, CA

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