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.

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.

There are two ways that a 403(b) rollover works — through direct or indirect transfers.

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.

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.

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.

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.