Question on previous 403-b
Dear Ed or whomever,
Thank you for excellent IRA reading with the book, “How to Parlay your IRA…” I have read the book. I am now reading the book again since I don’t use the information on a daily basis, it’s easy to forget some of it.
The reason I’m writing is this: I am a Financial and Retirement Adviser and just sat down with a couple whom both have 403-b’s. They are not contributing to these accounts since they are retired, however, they are still listed as 403-b’s. I am under the impression that they should have been reclassified under the tax status of an IRA. Is that true? If still a 403-b, don’t all assets in the account(s) have to disbursed upon death if going to beneiciaries other than spouse?
Secondly, if listed as a 403-b, can the heirs still do a stretch program?
Thank you!
Barb Lane
Permalink Submitted by Alan Spross on Tue, 2007-08-14 22:23
Barb,
There is no automatic reclassification. These 403b accounts should probably be transferred to TIRAs to take any restrictive plan provisions that may exist out of the equation. However, there may be other factors to consider such as high amounts of pre 1987 accruals which carry a required beginning date of age 75 instead of the earlier date if transferred to IRAs. That would allow them to defer RMDs longer for that portion of the 403b balance.
The current 403b may optionally offer a post death transfer (and the transfer might become mandatory under the proposed technical corrections act) to an inherited IRA. That way, a non spouse beneficiary could transfer the 403b to an inherited IRA and use their own life expectancy for RMD. However, if the client does the transfer prior to death, the beneficiaries are spared the detail of doing the transfer and/or risk that they miss the deadline date and lose their stretch. That’s why it is safer to move the accounts to a TIRA now while still living.
Permalink Submitted by [email protected] on Wed, 2007-08-15 01:21
One other point-they may have loan privileges in the 403(b)s which would not be available in IRAs. But Alan is correct, absent the loan aspect and/or pre-1987 balances, it probably makes sense to go to IRAs.