Moving 403(b) Money — Tread Carefully

A slalom course can be tricky. It takes some deft maneuvers to navigate one, but with practice and skill it can be done. A Feb. 28 session of the NTSA Summit offered some reminders regarding the importance of the twists and turns of moving 403(b) money. 

The session was led by moderator Sue Diehl, President, PenServ Plan Services. Joining her were Jose Alfaro, Manager/Supervisor Consulting Services, PenServ Plan Services, and Kaitlin James, TGPC, Lincoln Investment. 

Plan-to-Plan Transfers

It is very important to understand whether loans come along with transfers, Alfaro cautioned. Further, he said, if there is an exchange between approved vendors, if a loan is involved, it most likely will be “deemed.”

Distributions

There are important considerations regarding distributions:

• mandatory 20% withholding on rollover-eligible distributions;
• 1099-R tax reporting;
• possible 10% early distribution penalty; and
• the requirement that a distribution form be updated to reflect the new withholding election rules. 

James took a look at in-service distributions, noting that such distributions can:

• occur at age 59½;
• be made for hardships (note that the rules for that change in 2024); and 
• be made for qualified birth or adoption expenses. 

Changes

James added that the rules regarding required minimum distributions have changed. In addition, under SECURE 2.0, new distributions will be allowed for: 

• emergency personal expenses (up to $1,000);
• incidents of domestic abuse; and
• qualified disasters (up to $22,000).

James added that under SECURE 2.0, emergency savings accounts are allowed, as well. 

Diehl offered a note of caution, remarking that “there are a lot of moving parts in emergency distributions.” In addition, she said, domestic abuse distributions are subject to HIPAA (Health Insurance Portability and Accountability Act of 1996) privacy rules. In addition, she said, they cannot be included if spousal consent is required. 

The Bottom Line

Don’t assume that you can move money,” said Alfaro. “Always go to the plan document — it will tell you what you can and can’t do,” he continued. “You have to educate clients on distributions and what kind of movement to use,” Diehl added.