Ethan Rhodes
If you have a 403(b) retirement plan through your employer, you may be able to roll over your savings into an individual retirement account (IRA) or a different retirement plan when you change jobs or leave your current job. A 403(b) rollover allows you to transfer your retirement savings from a 403(b) plan into an IRA or another retirement plan, such as a 401(k) plan or a 457 plan. There are several reasons why someone may want to consider rolling over their 403(b) into an IRA or a different retirement plan, including convenience, maximising the return on retirement investments, and consolidating retirement accounts to make it easier to manage retirement assets.
| Characteristics | Values |
|---|---|
| When to roll over 403(b) | When leaving a job or retiring |
| Where to roll over 403(b) | Into an Individual Retirement Account (IRA) or another retirement plan |
| Benefits of rolling over 403(b) into an IRA | More investment options, lower investment fees, convenience, maximising return on retirement investments |
| How to roll over 403(b) | Direct or indirect rollover |
| Taxes on direct rollover | No taxes if done correctly |
| Taxes on indirect rollover | 20% of savings withheld for federal income tax upfront, can reclaim money when filing taxes at the end of the year |
| Deadline for indirect rollover | 60 days |
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What You'll Learn
Rolling over a 403(b) into an IRA
If you are no longer working with the employer that established your 403(b) account, you can roll your 403(b) balance into a traditional individual retirement account (IRA). If you change jobs or retire, you can roll over your 403(b) account balance into an IRA. If you go to a new job that offers a 401(k) savings plan, you may be able to transfer the balance of your 403(b) account into it.
One of the key reasons for rolling over a 403(b) balance into an IRA is to get more investment choices. 403(b) plans have a reputation for offering limited investment options when compared to other retirement plans, such as 401(k)s. While 403(b) plans can offer both annuity contracts and mutual funds, many popular investments, such as individual stocks and real estate investment trusts (REITs), are not allowed in 403(b) accounts.
Another reason to roll over a 403(b) is to consolidate your accounts to make it easier to manage your retirement assets. You could roll over several employer-sponsored accounts into a single IRA, for example. You, or your financial professional, will be able to view and track your investments in one place, which can help ensure your savings are allocated according to your time horizon and objectives. Reducing your number of retirement accounts may also help you save on investment fees and overall costs associated with the plan.
When you roll over your funds, always make sure it is sent via a direct transfer—that is, the funds are sent by your 403(b) record-keeper directly to the IRA custodian, without you handling any money or checks. Generally, only a signed contribution form is required by the individual retirement account (IRA) custodian/trustee to deposit the funds into an IRA. However, you should consult with your IRA custodian about their policies and procedures to prevent any unnecessary delays. You should also consult with your 403(b) plan administrator or carrier to ensure the proper paperwork is completed. You may need to complete a distribution request form in order to have the assets distributed.
There are important factors to consider when rolling over assets to an IRA, including investment options in each type of account, fees and expenses, available services, potential withdrawal penalties, protection from creditors and legal judgments, required minimum distributions, and tax consequences.
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Direct vs. indirect rollovers
If you are no longer working with the employer that established your 403(b) account, you can roll over your 403(b) balance into an individual retirement account (IRA). You can also roll over a 403(b) plan if your new employer offers a 401(k) instead of a 403(b). One of the key reasons for doing so is to gain more investment options, as 403(b) plans have a reputation for offering limited investment options compared to other retirement plans.
A direct rollover is when your full original balance is sent to the destination account, with no money held back for potential taxes. The money is never put in your possession, and there is no limit to the number of rollovers you can make. You will not have the opportunity to take any money as a distribution, and so you will not incur any taxes or penalties for doing so.
With an indirect rollover, you receive the money from your original account to send to your destination account. This means that you will possess the money until you deposit it in a new retirement account. You will only have 60 days to complete the rollover process, and if you do not deposit the full amount, the percentage that was withheld for taxes will be considered a distribution, and you will be taxed on it.
It is important to note that if you are rolling over a 403(b) plan, you will need to check with the provider of your 403(b) and the provider of the new IRA to see what forms you will need to complete the rollover. For example, you may need to complete a distribution request form to have the assets distributed.
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403(b) rollover rules
If you are no longer working with the employer that established your 403(b) account, you can roll over your 403(b) balance into a traditional individual retirement account (IRA). If you change jobs or retire, you can also roll over your 403(b) account balance into a traditional IRA. If your new employer offers a 401(k) savings plan, you may be able to transfer the balance of your 403(b) account into it.
The 403(b) rollover rules differ based on the type of account you choose to roll into. The main reason to roll over a 403(b) is to consolidate your accounts to make it easier to manage your retirement assets. For example, you could roll over several employer-sponsored accounts into a single IRA. You, or your financial professional, will be able to view and track your investments in one place, which can help ensure your savings are allocated according to your time horizon and objectives. Reducing your number of retirement accounts may also help you save on investment fees and overall costs associated with the plan.
When you roll over your funds, always make sure it is sent via a direct transfer—that is, the funds are sent by your 403(b) record-keeper directly to the IRA custodian, without you handling any money or checks. Generally, only a signed contribution form is required by the IRA custodian or trustee to deposit the funds into an IRA. However, you should consult with your IRA custodian about their policies and procedures to prevent any unnecessary delays. You should also consult with your 403(b) plan administrator or carrier to ensure the proper paperwork is completed. You may need to complete a distribution request form in order to have the assets distributed. The administrator may also require an acceptance letter from your IRA custodian.
If you have a 403(b), you can roll your money into a Roth IRA. However, because Roth contributions are made with after-tax dollars, this kind of rollover of pre-tax dollars is considered a "Roth conversion." That means you’ll have to report the money in your 403(b) as income and pay income tax on it during the tax year in which you make the rollover. Despite that tax liability, in some cases, it may still make sense to do this kind of rollover. But it’s important that you consult a financial advisor and/or tax professional to determine if this is the right move for you.
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403(b) rollover options
If you are no longer working with the employer that established your 403(b) account, you can roll over your 403(b) balance into a traditional individual retirement account (IRA). You can also roll over a 403(b) plan if your new employer offers a 401(k) instead of a 403(b). If your new employer offers a retirement plan, such as a 403(b) or 401(k), you can roll over funds from your 403(b) plan into that plan as long as the plan rules allow for the rollover in both the outgoing and incoming plans.
One of the key reasons for rolling over a 403(b) balance into an IRA is to get more investment choices. Notably, 403(b) plans have a reputation for offering limited investment options when compared to other retirement plans, such as 401(k)s. While 403(b) plans can offer both annuity contracts and mutual funds, many popular investments, such as individual stocks and real estate investment trusts (REITs), are not allowed in 403(b) accounts.
Another reason to roll over a 403(b) is to consolidate your accounts to make it easier to manage your retirement assets. For example, you could roll over several employer-sponsored accounts into a single IRA. You, or your financial professional, will be able to view and track your investments in one place, which can help ensure your savings are allocated according to your time horizon and objectives. Reducing your number of retirement accounts may also help you save on investment fees and overall costs associated with the plan.
If you have a 403(b), you can roll your money into a Roth IRA. However, because Roth contributions are made with after-tax dollars, this kind of rollover of pre-tax dollars is considered a "Roth conversion." That means you’ll have to report the money in your 403(b) as income and pay income tax on it during the tax year in which you make the rollover. Despite that tax liability, in some cases, it may still make sense to do this kind of rollover. But it’s important to consult a financial advisor and/or tax professional to determine if this is the right move for you.
When you roll over your funds, always make sure it is sent via a direct transfer—that is, the funds are sent by your 403(b) record-keeper directly to the IRA custodian, without you handling any money or checks. Often, a signed contribution form is the only item needed to deposit the funds into an IRA. Generally, only a signed contribution form is required by the IRA custodian or trustee to deposit the funds into an IRA. However, you should consult with your IRA custodian about their policies and procedures to prevent any unnecessary delays.
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Reasons for rolling over a 403(b)
A 403(b) plan is a retirement account for employees of public schools and tax-exempt organisations. It is similar to a 401(k) plan, but the former is offered by public schools and certain charities to their employees. A 403(b) plan lets employees defer part of their salaries into individual accounts without any state or federal income taxes on the money until it is withdrawn.
If you are no longer working with the employer that established your 403(b) account, you can roll your 403(b) balance into a traditional individual retirement account (IRA). You can also roll over a 403(b) plan if you leave a job and your new employer offers a 401(k) instead of a 403(b).
- Convenience and maximising returns: Rolling over multiple retirement accounts into a single IRA gives you a single statement for all your retirement savings. This makes managing your overall financial picture simpler and more effective.
- More investment options: IRAs tend to offer more options for investment than 403(b) plans. While 403(b) plans can offer both annuity contracts and mutual funds, many popular investments, such as individual stocks and real estate investment trusts (REITs), are not allowed in 403(b) accounts.
- Lower investment fees: IRAs tend to have lower investment fees than 403(b) plans.
- No taxes: As with an IRA or 401(k) rollover, you won't pay taxes on the funds if the rollover process is done correctly and according to IRS guidelines.
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Frequently asked questions
A 403(b) rollover allows you to transfer your retirement savings from a 403(b) plan into an IRA or other retirement plan when you change jobs or retire.
One of the key reasons for rolling over a 403(b) balance into an IRA is to get more investment choices. 403(b) plans have a reputation for offering limited investment options when compared to other retirement plans, such as 401(k)s.
There are two types of 403(b) rollovers: direct and indirect. Direct rollovers are generally simpler and do not risk tax penalties. With an indirect rollover, 20% of your savings may be withheld for federal income tax upfront, although you can reclaim this money when you file your taxes.
First, decide where you want to put your money and whether you want to do a direct or indirect rollover. Then, you will need to authorise your plan administrator to make the transfer and fill out any necessary forms.
