Named after Section 403(b) of the Internal Revenue Code, a 403(b) plan is a tax-advantaged defined contribution retirement plan available to certain public school employees, tax-exempt non-profit organizations, and some church ministers.
Much like with a 401(k), employee participants in a 403(b) plan are able to defer money from their paychecks into a retirement investment account. In fact, a 403(b) to Gold IRA rollover acts very similarly to a 401(k) rollover in many aspects. Each has a plan provider and plan administrator, and the investment options available to a participant are limited to what their specific plan offers.
403(b) accounts used to be referred to as “Tax Sheltered Annuities”, as they were initially set up to only offer annuities as an investment choice. Even though more investment types are now eligible to be offered, many 403(b) rollover plan providers are still insurance companies who predominantly feature annuities (much like how many 401(k) providers are mutual fund companies, and therefore most 401(k) funds are allocated towards mutual funds).
Most employers who offer 403(b) plans do not offer contribution match programs like many 401(k) plans do, since doing so would subject the plan to ERISA (Employee Retirement Income Security Act of 1974) compliance guidelines and regulations. That said, avoiding ERISA guidelines often means smaller administrative costs and fees within a 403(b).
403(b) Rollover Rules & Limitations
If you have a 403(b), you can roll them into an Individual Retirement Account (IRA), other 403(b) accounts, a 401(k) plan or other select qualified plans without incurring any tax penalties. Here is an overview of some 403(b) rollover rules:
- When you receive funds from your 403(b) for a rollover, you have 60 days to complete the process. If you fail to do this, the IRS will treat your money as a taxable distribution. Additionally, if you are not yet 59 ½ years old, the IRS will also impose a 10% penalty on the withdrawal on top of the normal income taxation.
- You are limited to one rollover per year from a 403(b) into an IRA. This one-year period begins on the date that you receive your 403(b) distribution. This applies separately to each IRA that you own.
- You cannot use the cash from your distribution to purchase investments in the period in between receiving your 403(b) distribution and establishing your IRA.
- It is advised that you select the option to perform a “direct rollover” with your 403(b) funds. In a direct rollover, you never receive a check for your distribution; rather, your 403(b) plan provider will transfer the money directly into you new IRA plan.
Types of Gold you can Invest in a 403(b) Rollover Plan
403(b) plans offer more investment options than they used to; however, they still tend to have some of the most limited choices of any retirement plan. Though your options are limited to what your plan provider makes available to you, 403(b) plans are eligible to include:
- fixed, equity indexed and/or variable annuities
- individual stocks and bonds
- mutual funds
- exchange-traded funds (ETF’s)
In short, this means that you cannot invest in physical gold bullion (or any other precious metal) through a 403(b) Plan. The simplest way to invest in gold through a 403(b) is to purchase stocks in gold mining companies, or to purchase a mutual fund that includes mining company stocks. This is referred to as buying “paper gold.” There are also gold ETF’s (GLD) and mining ETF’s, which provide indirect access to investing.
Investing in Physical Gold vs. “Paper Gold”
So-called “paper gold” stocks are the shares of companies that mine, produce and explore for gold. There are literally hundreds of gold stocks to choose from, and the larger companies are listed on major gold stock indices like the Gold Miners Index (GDX) or the BUGS Index (HUI).
Gold stocks tend to be more risky than owning physical gold. This is because, historically, gold stocks will appreciate very quickly as the spot price of gold rises; if the price of gold falls, gold stocks tend to fall much faster.
Gold stocks are also exposed to additional kinds of risk.
- Regulatory Risk – mining and exploration companies are subject to increased regulation and taxes.
- Cost of Production Risk – mining equipment depreciation, increased land values, and labor costs can all negatively impact a mining company.
- Management Risk – mismanaged or overly-leveraged companies can and do declare bankruptcy or close shop altogether.
- Fiat Currency Risk – when you sell securities like gold stock or shares of a gold mutual fund, you will be paid in a fiat currency. That means that, in the event of currency collapse, you can be left holding worthless paper.
The value of physical gold has never hit zero and has retained value for thousands of years. In terms of staying power, physical gold wins hands down.
Benefits of Rolling Over a 403(b) Rollover Plan to a Precious Metals IRA
The advantage of rolling over your 403(b) Plan assets into a self-directed IRA is that you are able to control the designation of your retirement funds and open up new tax-free investments – like precious metals. In an employer-funded retirement plan, such as a 403(b), your investment options are more limited than with a precious metals IRA.
Additionally, 403(b) rollover plans require the account owner to establish a vesting schedule, which means that you are only entitled to your funds after a certain length of time has passed. In terms of flexibility, the self-directed IRA still wins hands down.
Additionally, 403(b) rollover plans are vulnerable to the business risks of your employer. If your employer declares bankruptcy, for instance, you could lose the ability to contribute to your retirement plan.
Benefits of Dedicating 5-20% of your Retirement to Precious Metals
Gold investments are simple, safe way to diversify your retirement portfolio. Gold (along with other investment metals like silver, platinum and palladium) will help protect your assets against stock market volatility and inflation.
Not only is gold a great hedge, but gold offers plenty of growth potential; in fact, many investors purchase gold for its growth prospects alone, and many analysts predict gold to continue to see gains in the future. The total amount of precious metals in your retirement portfolio will depend on your own risk tolerance and retirement horizon. One of the best ways to set up a diversified retirement portfolio – and receive tax benefits on your precious metals investments – is to open a self-directed IRA.
Should I Roll Over My 403(b) Rollover Account into an IRA?
When you leave a job where you have an employer-sponsored retirement account like a 401(k) or 403(b) account, you have the option of rolling those retirement assets into an IRA. And there are several reasons to consider moving your funds into an IRA:
“In a rollover IRA, you have more control over your investments and a wider range of investments to choose from.”
Many people change jobs multiple times over their careers, which can result in a trail of retirement accounts. Consolidating your accounts makes it easier to manage and monitor your progress. When you roll over the assets in your 401(k) or 403(b) account into an IRA, your potential tax advantages and growth potential are preserved. An IRA may carry lower fees than your employer-sponsored 401(k) or 403(b) rollover account.
Employer-sponsored plans often offer fewer investment options than the number of options made available under an IRA.
“In a rollover IRA, you may have more control over your investments and a wider range of investments to choose from.”Bill Hunter, Head of Strategy and Retirement Client Experience at Bank of America Merrill Lynch.
There’s one potential wrinkle, though: If you roll assets from your workplace plan into a traditional IRA, you’ll need to begin taking required minimum distributions (RMD’s) when you reach the age of 70½, even if you’re still working. Many employer-sponsored plans, such as your 401(k) or 403(b) rollover account, don’t require RMDs, as long as you’re working, with some exceptions. You could also choose to roll your assets into a Roth IRA, which doesn’t require RMD’s, either.
A Rollover IRA isn’t right for everybody. Consider all of your choices in consultation with your legal and/or tax advisors and decide whether rolling over may be the right choice for you.
Do I Have to Pay Taxes When I Roll Over My Funds?
To avoid mandatory federal income tax withholding on the distribution, be sure to have your former employer send the money directly to the IRA custodian. If you don’t, your former employer must withhold 20% for federal income taxes. When the money is sent directly to you, you have 60 days to put the funds into an IRA — including the 20% that was withheld, which must be made up with other assets — or it will count as a distribution and could be subject to federal income taxes and a 10% additional federal tax, if you’re under age 59½ and no exception applies.
What if I Decided Not to Roll Over My 403(b) Rollover or 401(k) Account?
Other choices for your employer-sponsored retirement accounts include:
- leaving your money in the existing plan
- transferring it to your new employer’s plan
- cashing out (which may trigger taxes and the early withdrawal additional 10% tax, unless an exception applies, as well as eliminating the potential for your investment to grow)
How Much Can I Contribute to a 403(b)?
If you are younger than 50 you would have been allowed to contribute $18,000 into the account in 2016; if 50 or older you could make catch-up contributions up to $6,000. You should check with your human resources department or the tax code to get the current limits.
What Investment Products do 403(b) Accounts Use?
The 403(b) plan used annuities as their sole investment product until the mid-1970s. Annuities are basically insurance policies; your contributions to the fund pay the premiums on the policy. When you retire you can draw a monthly income or a specific amount in a lump sum. The lump sum will consist of your contributions plus the interest they have earned.
Some annuities offer a fixed interest rate while others vary with the market. And although the contributions are tax free, there are stiff penalties for withdrawing from the account before the annuity matures.
These days most 403(b) plans allow participants to invest in stocks and mutual funds, as well as annuities or a combination of the three products. If you have done any research on investing, you know that the key to success is diversity. Having a 403(b) retirement plan limits your investing options but you may be able to contribute more over your lifetime since your contributions are not taxable.
There are four types of investments currently approved for 403(b) retirement accounts:
- Mutual funds
- Individual bonds and stocks
- ETFs, or exchange traded funds
- Fixed or variable annuities
Can I Fund a 403(b) Rollover With Gold?
You cannot yet use a 403(b) retirement account to invest in gold or other precious metals but some plans do allow gold investment in the form of gold stocks and gold ETF’s (exchange traded funds). While many investors find that gold stocks and ETF’s are profitable for them there are significant risks in “paper gold” as these investments are called.
The Pros and Cons of Funding a 403(b) Rollover Account with “Paper Gold”
Paper gold is just that—a declaration of gold value on paper or papers that state you hold shares in a gold mine or a company that owns a gold mine. You can find companies like this on the Gold Miners Index (GDX). ETF’s are another form of paper gold whose value rises and falls depending on how risky the financial climate is.
Owning part of a mining facility can be very profitable but you are also prey to circumstances beyond your control. You are at the mercy of regulations and taxes imposed on these companies by the federal government. If you buy stock in a mine that is located in a foreign country you could profit more due to the lack of regulation. However, if your mine is in a volatile, unstable country you run the risk of it being confiscated by a temporary government, rendering your investment worthless.
Owning stock in a mine also means that your profits depend on the costs or production and the quality of management in charge of the facility. Poor management can mean that you are left holding worthless paper if the mine shuts down. You are also out of luck if the nation experiences a currency collapse since the value of your gold is only on paper, not in your physical possession.
What are the Disadvantages of a 401(k) and a 403(b)?
Despite the tax-friendly benefits of a 401(k) and a 403(b) rollover, some severe limitations should make you seriously think about switching them to a Gold IRA.
- Most employers offer limited pre-selected investment choices through their 401(k) and 403(b). These plans only feature combinations of stocks, bonds, and mutual funds.
- Because your 401(k) or 403(b) rollover retirement savings plans are only backed by paper assets, there’s no real protection behind them to safeguard you from market volatility. In fact, the strength (or weakness) of the economy alone determines the value of these assets.
- As your retirement savings account is under the management of an assigned advisor, you don’t have direct and full control over your fund movements or investment choices.
- The financial disadvantages of 401(k) and 403(b) plans are undeniable. But they’re avoidable. By transferring or rolling over a portion of your savings to a Gold IRA, you can maximize your retirement savings and secure your future. All financial experts agree that diversification, flexibility, and growth are essential components of a solid retirement plan. (See Page: Top 10 Gold IRA Companies).
You Can Still Use a 403(b) Account to Buy Gold
If you work for a tax-exempt company that has provided you a 403(b) rollover retirement account you can still use that account to invest in gold bullion, bars, or other forms of physical gold. All you need to is roll over your 403(b) into a more conventional 401K or other retirement account that allows you to fund it with physical gold.
Doing over your 403(b) rollover is not at all difficult. You have a choice of a direct rollover or cashing out and re-investing in a 401K. If you choose to cash out you have exactly 60 days to invest the funds. If you haven’t done so by day 61 you’ll pay a hefty 10% penalty on those funds.
You are not permitted to use the cash to buy investments before you establish a new IRA. Having an IRA already set up before you withdraw funds is the best way to maneuver those funds and keep within the time limits allowed. You are limited to one rollover annually.
Transferring a 401(k) or 403(b) Rollover into Precious Metals
The debt crisis is mounting, both domestically and globally. And with the global financial forecast looking so bleak, educated investors are rushing to convert their 401(k) funds into gold and other precious metals.
If you’re one of the many who consider switching, you first need to check the terms and conditions of your current IRA accounts. Be aware that most may not allow for precious metal investments, in which case you’ll have to roll your funds into a self-directed IRA that comes with the option of purchasing precious metals.
If you are ready to rollover your 403(b) account into a Precious Metals IRA Account NOW and wish to go on to the next step, first make sure to rollover to another retirement plan that will allow the possession of physical precious metals in your IRA, and afterwards, we highly suggest you research the best companies in the industry before you make your final decision.
Do you have any questions on how to rollover your 403(b) to a Gold IRA? Ask below!