Tip of the Week: Factors to Consider Concerning Rollovers Per FINRA Regulatory Notice 13-45

Editor’s Note: This is an occasional feature in the NTSA Advisor. It is drawn from The Source, a book that covers technical, compliance, administrative and marketing aspects of the 403(b) and 457(b) markets. More information about The Source is available here.

Tip of the Week concerns factors to consider concerning rollovers in light of FINRA Regulatory Notice 13-45.

1. Whether the wider array of investment options available in an IRA is superior (in the eyes of the investor) to the potentially low-cost institutional funds available in the employer sponsored plan.
2. A detailed comparison of the fees charged in the plan versus the fees in the IRA.
3. The impact of the penalty-free withdrawal available in the plan for employee who leaves the employer between the ages of 55 and 59½ versus the penalty tax that continues until age 59½ in the IRA.
4. Protection of assets from creditors and legal judgment. Depending on state law, if we are dealing with a non-ERISA 403(b), plan assets may have greater protections than in an IRA.
5. Required Minimum Distributions which need not be taken from the employer sponsored plan until the later of age 70½ or the year employment is severed versus the requirement that such distributions be taken from the IRA at age 70½ regardless of employment status.
6. The tax consequences of rolling over appreciated stock (which, after a rollover to the IRA would be taxed as ordinary income when distributed), which, of course, would not be seen in the 403(b) market.