What Is a 403(b) Rollover?
If you have a 403(b) retirement plan through your employer — and leave your job or retire — you have the option of rolling over your savings into an individual retirement account (IRA). This is called a 403(b) rollover.
A 403(b) plan is similar to a 401(k). But where a 401(k) is typically offered by an employer in a private, for-profit company, a 403(b) plan 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 — with no state or federal income taxes on the money until they withdraw it.
When It Makes Sense to Rollover Your 403(b) Into an IRA
There are several reasons why you may want to consider rolling over your 403(b) to an IRA. The biggest reasons involve convenience and maximizing the return on your retirement investments.
- Convenience over your retirement planning
- Rolling over multiple retirement accounts into a single IRA gives you a single statement for all your retirement savings. It allows you to monitor and manage your portfolio in one place rather than spread out among multiple plans from several past employers.
- Lower investment fees
- IRAs tend to have lower investment fees than either 401(k) or 403(b) plans. Fee structures differ between plans, so it’s worthwhile to compare the overall costs between them and consider the long-term costs when deciding whether to rollover your 403(b) into an IRA.
- More investment options
- Any IRA tends to offer more options for investment. For example, 403(b) plans are not allowed to offer you the option to buy individual stocks or put your money into a real estate investment trust (REIT).
Best Reasons for Rolling Over a 403(b) Into an IRA or 401(k)
How Does a 403(b) Rollover Work?
There are two ways that a 403(b) rollover works — through direct or indirect transfers.
- Direct transfer
- In a direct transfer, you tell your 403(b)-plan administrator where you want the money to go. The administrator then transfers the money directly into your new IRA or other retirement account.
- Indirect transfer
- With an indirect transfer, you have the 403(b)-plan administrator send the money from your account to you. You then have 60 days to redeposit the money in your new retirement account.
Direct vs. Indirect Transfers
What Do You Need to Do to Roll Over Your 403(b)?
The first thing you need to do to roll over your 403(b) is to decide where you want to put your money.
You’ll then need to decide whether you want to do a direct or indirect rollover. Direct rollovers tend to be the better option because they don’t risk tax penalties. If you choose an indirect rollover, your plan will have to withhold 20% of your savings for federal income tax upfront (then, you can reclaim the money when you file your taxes at the end of the year).
After you’ve made your decision, you simply need to authorize your plan administrator to make the transfer.
You may have to fill out and sign a distribution request form. You may also have to get a letter from the plan custodian at your job to confirm that your savings will be deposited into an eligible retirement account.
You can usually contact your employer’s human resources department to make the arrangement. The plan’s administrator will do the rest.
What Are the Rules for Rolling Over a 403(b)?
The plans that you’re allowed to roll over your savings into depend on the type of 403(b) that you have — either traditional or Roth. A traditional 403(b) is pre-tax — meaning, the money you contribute to the plan isn’t taxed until you start making withdrawals. Contributions to a Roth 403(b) are taxed at the time you make them — but your withdrawals are not subject to income tax.
You can only roll a traditional 403(b) plan into a traditional IRA or other pre-tax retirement plan. And you can only roll over a Roth 403(b) into another Roth-style account.
Plans You Can Roll Over Your 403(b) Into
If you switch jobs, you can also roll over your 403(b) savings into certain other employer-sponsored retirement plans that your new job may offer.
For instance, if you take a new job with a traditional 401(k) plan, you can roll over your old traditional 403(b) savings into the new 401(k). This applies to several different types of retirement plans.
Plans You Can and Cannot Roll Over a 403(b) Plan Into
|403(b) (pre-tax, with a new employer)|
|457(b) Plan (government retirement)|
|Designated Roth Account — 401(k), 403(b) or 457(b)|
|Qualified Plan (pre-tax)|
After two years
Will You Incur Penalties for Rolling Over Your 403(b) Into an IRA?
You will incur penalties — and must pay income taxes — if you wait too long to roll over an indirect transfer.
Your 403(b) plan will also withhold 20% of your savings for federal income taxes if you make an indirect rollover. This does not apply to direct rollovers.
If you miss the 60-day deadline to move the money into your new account with an indirect rollover, you will also have to pay a 10% penalty if you are younger than 59 1/2.
The IRS may waive the 60-day deadline if the deposit was delayed by circumstances beyond your control.
Frequently Asked Questions
A 403(b) plan — also called a tax-sheltered annuity plan — is a type of retirement plan similar to a 401(k). While 401(k) plans are typically employer-sponsored at private, for-profit businesses, 403(b) plans are provided to certain public-school employees, ministers, and employees of 501(c)(3) tax-exempt organizations.
It depends. You can if you have a Roth 403(b) plan. You cannot roll a pre-tax or traditional 403(b) plan into a Roth IRA. Roth IRAs and Roth 403(b) plans tax your contributions to the account when you make them. Traditional IRAs and 403(b) plans are pre-tax, meaning they don’t tax your contributions until you withdraw them. Simply put, you can roll over a Roth account to another Roth account or a traditional account to another traditional one. But you can’t typically mix and match.
After a job change, you can decide to keep your 403(b) account where it is with your former employer, roll it over into an eligible retirement account at your new employer or roll it over into an IRA.
If you choose to make an indirect rollover of a 403(b) plan, you have 60 days to complete the transfer. If you miss the deadline, you face a 10% penalty and income taxes on your savings.