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Who Really Owns Your 403(B)?

Tony Wiley

I have made the acquaintance of many educators over the years; both retired and still in service.   I was fortunate enough to meet many of them while working with one of the 403(b) providers in the public school systems. Most of them had regularly contributed to their accounts as a way to supplement their pensions. What I’ve found is that the vast majority were not aware that there had been major changes made to 403(b)s over the last several years.

First, let’s describe what a 403(b) is. It is the tax code used to describe a tax sheltered annuity (TSA). This TSA is frequently referred to as a 403(b), and pretty much encompasses employees that work for non-profit organizations, such as teachers. These accounts in the past were owned by the plan participant (teacher). Under the most recent rule changes, every 403(b) is required to have a written plan document and typically is administered by a third-party administrator, or aggregator, depending upon what the organization calls it. The bottom line is that this written plan document replaces the individually owned 403(b) plan document and requires that the employer, not the teacher, has control over these accounts. Now it’s still the teacher’s money; after all they made the contributions and in most cases there was no match from the employer.  However, it is now the employer that determines things like benefits, investment options, loans and transfers and the timeframe and form of distributions. It basically puts the administration and compliance of the plan on the employer much like a 401(k) plan. This can be both positive and negative. On the positive side, no 403(b) plan may be found to discriminate in favor of highly compensated employees in regard to employer contributions and after-tax employee contributions. On the flipside, things like loans, hardship withdrawals, and how the money is distributed to beneficiaries is left in the hands of the employer. These rule changes have no bearing on pensions, which is a completely different topic. But with talk of pension reform, these accounts may be more important to maintaining one’s current lifestyle than was previously anticipated.

With all that said, there are options for both in-service and retired teachers that have the potential of putting them back in the driver seat. For the already retired, consider moving that 403(b) into a self- directed IRA. This gives much more flexibility in terms of investment options, not to mention the ability to have more control of how the money is distributed. For those still in service, consider a Roth IRA using after- tax dollars. In a Roth the taxes have already been paid and if done properly that person will not owe any future tax as they would in a 403(b). Both self-directed and Roth IRAs can result in significant savings on future taxes, thus allowing that money to stay with you and your family.

About the Author:

Tony Wiley is a certified financial educator and licensed to sell life and health insurance as well as annuities. With his experience and expertise, Tony is well qualified to help individuals achieve their goals. Tony firmly believes that protecting, growing and accessing one’s money in the most tax efficient manner is paramount.

After serving for over twenty years as a financial advisor and vice president for some of the largest investment banks and brokerage firms in America, Tony realized that even some of the most well diversified accounts were not immune to downturns in difficult times. Tony now coaches individuals on how to keep their nest egg safe for retirement. Perhaps one of the most important points he makes during coaching sessions is that if a person has to pull money out of their account for any reason during difficult times, it can have a devastating effect on their nest egg. He believes this is one of the many reasons it is of extreme importance that investors seek the assistance of professionals who fully understand all of the nuances of retirement investments. If you have any retirement planning questions, feel free to call Tony at 312-226-6202.


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