My mother is 68 years old and is currently working. She has a 403(b) retirement plan that she has been contributing to for about 14 years. The account was recently terminated and she's unsure where to put the money so she'll be able to access it within the next 12-18 months. What should she do?
FPA® member, William J. (Will) Taylor CFP®, vice president and senior trust officer at F & M Bank offered this response: "As I give you some options please be aware that complete data has not been gathered, alternatives have not been considered and a financial planning engagement has not been established. My reply will be in general terms so I suggest your mother speak to a financial planner near her to obtain specific recommendations for her situation.
"To be able to easily access the money, your mother can roll her 403(b) plan balance over to an individual retirement account (IRA). In most plans, this would mean using a traditional IRA as the instrument to receive the funds. This transfer can be done without any tax consequences if the proper arrangements are made. The administrator of the 403(b) plan should have the necessary forms to complete this transfer which is usually referred to as a "direct rollover." Using an IRA will allow her to control how the money is invested and to easily make withdrawals as needed.
"The location of the IRA needs to be considered. Virtually every financial services institution offers IRAs including financial planning providers, banks, credit unions, brokerage companies and insurance companies. Sometimes there is confusion regarding IRAs as they are erroneously described by the type of investment rather than the rules that govern them. Every institution that offers IRAs has specific types of accounts which dictate the type of investment that can be in the IRA. For example, banks and credit unions will offer IRAs that are held in certificates of deposit, while brokers and insurance companies will perhaps suggest mutual funds or annuities as the investment.
"Each investment will have different parameters with regard to redemption and return from an IRA. Also, each investment has different levels of risk that your mother will need to consider. Using a financial planner to help her understand what type of investment she should have is very important. The planner can address concerns of ease of accessibility, level of risk, and return potential. The rules of an IRA do not change with the various providers, only the terms and conditions of the specific vendor and investment change. A financial planner will help sort all this out for your mother.
"Also, since your mother is working at age 68, a financial planner can help her determine the contribution these 403(b) plan dollars will make in her overall retirement. Questions such as how much longer will she have to work, how much will be available to help your mother throughout her retirement and how does this retirement benefit relate to her overall estate can be answered by a financial planner who is very familiar with her situation. I cannot recommend the use of a financial planner enough. "