403(b) rollover under EGTRRA to an outside annuity

[Guest bobgio]

A Teacher in New Jersey wants to roll her balance in her 403(B) to an annuity outside. She is still employed and wants to continue derferring into her 403(B). Her 403(B) annuity administrator is telling her she cannot continue in the 403(B) because by moving it, she has closed out the account. What is true? If there is portability, how does she continue deferring into the 403(B)?+

[mbozek]

Before reviewing the issues you raise what are the rights of the teacher to transfer /withdraw funds from the annuity under the terms of the plan or agreement with the employer or fund provider/ custodian. Some 403(B) plans do not permit a transfer of funds to another contract while the employee is working. The ability to transfer funds while working is a condition of employment which can be restricted by the employer under the plan (e.g. by closing out the account).

[Guest getaxa]

If this is a public school teacher, the teacher can move elective deferals from one 403(B) provider to another provider 403(B) via the 90-24 transfer. A 90-24 transfer request does not have to be honored by the either 403(B) provider. If this is a k-12 school, the school would not get any information that the money is being moved. The 90-24 transfer request goes from 403(B) providor to the other 403(B) providor. If this is a public school, there is (more than likely) no plan document and the school has no right to restrict elective deferals, moreover they would never know it had taken place. I would have the client fill out the 90-24 transfer form and send it to the other annuity company and see if the money comes in. You have nothing to lose.

[mbozek]

The ability to transfer the funds depends upon the type of investment - In a group annuity the employer as policy holder could restrict the right of an employee to tranfer funds.

[Ellie Lowder]

To complete the response to the original question, you would tax-free transfer a portion of the account, leaving some balance there for future elective deferrals - e.g., would not transfer the entire balance.