When you change jobs and move to another employer, it is common to leave a trail of employer-sponsored plans like 403(b) behind. While the retirement accounts can still grow on their own, this is not the best option for your retirement money. Fortunately, once you leave your employer, you have several 403(b) rollover options.
If you are no longer with the employer that sponsored your 403(b) plan, you can roll over your 403(b) balance into a 401(k) account with your new employer. If you have an IRA, you can also transfer your 403(b) funds into a traditional IRA to get access to a wider pool of investment options. Additionally, you can roll over 403(b) into a Roth IRA; since a Roth IRA is funded with post-tax dollars, you will owe income taxes on the conversion.
Can you roll over 403(b) to a 401(k)?
If your new employer offers a 401(k) plan, you can roll over your 403(b) money into the 401(k) plan. Rolling over 403(b) into a 401(k) is a good option if you are comfortable with the investment options available in your 401(k), and you want to manage all your retirement assets in one place. Since contributions to 403(b) and 401(k) are made with pre-tax dollars, rollovers from a 403(b) to a 401(k) are usually tax-free.
Can you roll over 403(b) to an IRA?
If you want to continue deferring taxes on your retirement savings, you can decide to roll over your 403(b) into a traditional IRA. Unlike a 401(k), an IRA is not affiliated with an employer, and you can open an IRA account with a brokerage. Since an IRA is funded with pre-tax dollars, you won't pay taxes when you roll over your 403(b) into the account. An IRA also gives you a wider selection of investment options to choose from.
When rolling a 403(b) to an IRA, the IRA custodian requires a signed contribution form to deposit funds into the account. You should also consult the 403(b) plan administrator to ensure you have completed the required paperwork. Examples of paperwork required include a distribution request form and an acceptance letter from the IRA custodian.
Can you roll over 403(b) to a Roth IRA?
If you have a Roth IRA, you can roll over your 403(b) into the IRA. However, since a Roth IRA is funded with post-tax dollars, there is a huge tax implication of rolling over 403(b) funds into the account.
When you convert 403(b) into a Roth IRA, you will owe income taxes on the conversion. Depending on the size of your 403(b) account, the taxes could constitute a large upfront expense. The Roth conversion can also push you to a higher tax bracket in the tax year when the rollover is executed.
There are income tax limits for Roth IRA contributions, and they can affect how much you can contribute to a Roth IRA. If your annual income falls within the IRS income limits, the amount you can contribute is reduced as you move towards the upper limits. If the annual income exceeds the upper limit, you won't be eligible to make Roth IRA contributions. However, the Roth IRA conversion is not affected by the IRS income limits.
Can you roll over 403(b) to another 403(b)?
If your new employer offers a 403(b) plan and you are comfortable with the investment options available in the plan, you can decide to roll over your 403(b) into the new 403(b) plan. You won't owe income taxes on the rollover. However, if the new employer offers a Roth 403(b), you will pay taxes when you transfer your 403(b) funds into the Roth 403(b) account.
Reverse rollover: Rolling over 401(k) to a 403(b)
If your change jobs from a for-profit to a non-profit employer, you may wonder whether it is possible to roll over the old 401(k) into a 403(b) plan. Generally, the IRS allows rolling over 401(k) to a 403(b) plan. You can decide to do a direct transfer, where the funds are transferred directly from your 401(k) plan to a 403(b) without coming into contact with the money.
However, if you opt to do an indirect rollover, the funds will be paid to you, and you have 60 days to deposit the funds into a 403(b) plan. If you fail to deposit the funds into a 403(b) plan within 60 days, the funds will be considered a taxable distribution. You will owe income taxes on the money and a 10% early withdrawal penalty if you are not yet 59 ½.
Do you have to roll over 403(b)?
When you change jobs, you can decide to roll over your 403(b) account or leave it with your former employer. If you are comfortable with the 403(b) plan's investment options, you can choose to do nothing, and the former employer will continue managing the retirement money until you decide what to do with the money.
However, you must have at least $5,000 in your 403(b) balance for your employer to continue managing the funds. If your balance is below $5,000, your employer may force a rollover to an IRA of its choice. Once this happens, you would have to contact your 403(b) plan administrator to locate your 403(b) fund.
