If you’re unhappy with your current 403(b) provider, you might not have to just sit there and take it… As it turns out, the IRS allows you to perform something called a 90-24 transfer, which allows you to move your funds to the vendor of your choice, even if they’re not on your employer’s list of approved vendors. Keep in mind, however, that while the IRS allows these sorts of transfers, they don’t require them. Thus, you need to be sure that both your employer and your current vendor allow such transfers. But if they do, you’re in luck…

Beyond verifying that your employer and current financial institution allow 90-24 transfers, double-check to make sure that you won’t incur any surrender charges. If you’re facing such charges, you need to factor those into your decision. The next step is to contact the institution to which you want to transfer the funds to get the paperwork rolling.

If you can pull it off, this can offer you the best of both worlds — the tax advantages of a 403(b) with the flexibility of investing wherever you want.

Here are a few things to keep in mind…

First, 90-24 transfers are trustee-to-trustee transfers, so be sure that you never take possession of the funds. If you do, the IRS will deliver a smackdown in the form of early withdrawal penalties.

Second, you might be able to avoid surrender charges by making smart choices in what you initially invest in. It’s generally best to avoid insurance-based vehicles, which can have stiff surrender fees in the case of early withdrawal. Instead, try to focus on standard mutual funds, or even money market funds which typically don’t carry such restrictions.

Third, the IRS has proposed new 403(b) rules that will eliminate the 90-24 transfer effective January 2008. Thus, unless things change, this is a time-limited opportunity. Fortunately, Vanguard is one of my employer’s 403(b) vendors, so we don’t have any desire to shuffle our funds around.