SEPP 72t 403b Plan Specific
L1: SEPP 72t 403b Plan SpecificHello,
I understand that you can start the SEPP plan on a 403b if you have severed ties with your employer. On the 403b (if I have decided not to rollover into an IRA)in order to start the SEPP does it have to be approved with the individual 403b vendors for approval? So in essence, is it vendor plan specific catering to their rules and regulations? Thank you very much.
Jim2009-03-18 17:39, By: Jim, IP: [18.104.22.168]
L2: SEPP 72t 403b Plan SpecificJim,
Yes, a 403b plan qualifies as the source for a SEPP. In addition, you can have a SEPP despite the fact that the plan custodian is not aware of it and would be clueless if they were aware of it. However, by initiating this plan you are stacking the odds against you in the event there is a lack of flexibility to change distributions if you need to in order to comply with the 72t requirements or even to correct an executory error. For example, if you are using an IRA, and due to your error or the IRA custodian, too much is distributed, you can simply roll the excess back into the IRA. You could not do this with employer plans. In addition, you would have to file your own 5329 because your 1099R would be coded as an early distribution.
On balance, I would recommend the IRA rollover vrs trying to navigate through a 72t plan with a 403b provider.
Incidentally, if you separated in the year you turned 55 or later, your direct distributions from the plan receive a penalty exception for that reason. If the plan will provide you with installment or other flexible withdrawal arrangements rather than just alump sum distribution, you could avoid a SEPP plan altogether.
2009-03-18 18:39, By: Alan S., IP: [22.214.171.124]
L3: SEPP 72t 403b Plan SpecificMy wife had a 403(b) plan for about 15 years. During that time, we discovered that: 1) these programs tend to have minimal flexibility; 2) the performance of the funds in their sub-accounts was mediocre at best… and yes, these were the best funds they had, the others were a lot worse; and 3) the insurance company running the plan held our money with the grip of death. It took a maximum effort for about 4 months to get them to turn loose of it when she retired. When they ran out of excuses about why wecould not take the money, werolled it over into an IRA via a direct transfer and that was a night and dayimprovement in both performance and customer service.
We also discovered that the employees of the local school district where she worked didn’t have a clue about 403b plans and at one point told us that “403(b)(7) plans are illegal in this state”. Well, that was patently false since dozens of school districts in this statehad them at the time and the law allowing them came into being in 1974… several years before we requested that they switch her new money to such an account.
2009-03-19 03:36, By: Ed_B, IP: [126.96.36.199]