A 403(b) is a tax-advantaged retirement account for employees of tax-exempt organizations and public school teachers. It works like other tax-advantaged retirement accounts, including 401(k)s offered by private employers. In some cases — like when you change your job — you may want to transfer your 403(b) funds to an IRA. Here’s what you need to know before you roll over a 403(b) to an IRA.
A financial advisor can help you roll over an orphaned retirement account into a new one and walk you through different options for your financial plan.
What Is a Rollover?
A rollover happens when you move money from one retirement account to another. For example, if you take all the money from an employer-run 401(k) and put it into an IRA, this would be a rollover.
A rollover isn’t treated as a withdrawal if you follow IRS rules when moving the money. Most importantly, you need to place the money in another qualifying retirement account quickly, usually within a 60-day window.
The IRS allows you to roll money over between certain types of tax-advantaged retirement accounts. In the case of a 403(b), you can roll your money over based on the type of account you opened.
If you have a traditional 403(b), meaning you don’t pay taxes on the money you contribute to the account, you can roll your funds over to retirement accounts that include:
- Any pre-tax contribution IRA (including SEP and SIMPLE IRAs)
- Roth IRA
- 401(k)
- Roth 401(k)
- A different 403(b) portfolio
- Roth 403(b)
If you have a Roth 403(b), meaning that you don’t pay taxes on the account’s gains, then you can only roll money over to another Roth account. This would include a Roth IRA, a Roth 401(k) and a different Roth 403(b).
How Do You Roll Over a 403(b) to an IRA?
To do a 403(b) rollover, you generally need to meet one of two criteria:
- You have left your employer for a different job or employer
- You have left your employer and do not have a new one
As a general rule, you cannot roll your 403(b) over into another account unless you have left the employer that sponsored this plan. This includes IRA rollovers, meaning you can’t take your 403(b) funds and transfer them to an individual retirement account unless you leave that job.
However, if you are moving between two jobs that both offer 403(b) plans, you might want to consider taking the opportunity to roll your old 403(b) plan into an IRA. While 403(b) plans have gotten better in recent years, they still offer limited investment options compared with an IRA or a 401(k). You might be able to get more growth out of your retirement account if you roll it into an IRA when you have the chance.
To conduct a 403(b) rollover, you would pursue either a direct or an indirect transfer.
Direct Transfer
With a direct transfer, your plan custodian handles the actual transfer of funds.
In this case, you first need to set up the IRA or Roth IRA account that you’ll transfer the 403(b) into. Once you’ve set up your IRA account, you contact the plan custodian for your 403(b) and tell them that you would like to make a rollover. Provide them with your IRA account details so the custodian can execute the transfer of funds and move the money directly from one account to the other.
Indirect Transfer
When you execute an indirect transfer, you handle the funds yourself.
As above, first you need to set up the IRA or Roth IRA account that you’ll use. It’s very important that you do so, because You need to deposit the money into a new tax-advantaged account. If possible, you are typically better off using a Roth IRA as the tax advantages to this account are generally better than a pre-tax contribution account.
Once again, you contact your 403(b) plan custodian, but in this case you ask them to send you the funds directly. After you get the money, you can hold it in a personal bank account, but you must move it into a qualifying IRA account within 60 days. Missing the 60-day deadline triggers taxes and penalties for early withdrawal.
Indirect transfers are generally discouraged because the IRS requires your plan custodian to withhold 20% of the 403(b) account’s funds for taxes. This isn’t a permanent loss. As long as you properly roll your funds over into a qualifying retirement account you can reclaim that 20% withholding when you file your taxes at the end of the year. However, it does mean that those funds will lose out on a year of growth. In most cases, a direct transfer is preferable, if available.
Frequently Asked Questions
How Do I Transfer My 403(b) to Another Account?
To transfer a 403(b), you can request a direct rollover to another eligible retirement account, such as an IRA or a new employer’s 403(b) or 401(k). Contact your current plan administrator to initiate the rollover and provide the details for the receiving institution. A direct transfer ensures the funds move without you taking possession, preserving the tax-deferred status and avoiding penalties.
How to Transfer a 403(b) Without Penalty?
To avoid taxes and penalties when transferring a 403(b), use a direct rollover to another qualified retirement account. This means the funds move directly from your current provider to the new one, without you receiving a check. If you’re under age 59 ½, this approach prevents the 10% early withdrawal penalty and avoids triggering immediate income tax.
What Should I Do With a 403(b) After Leaving My Job?
After leaving a job, you can keep your 403(b) with your former employer, roll it into an IRA, or transfer it to a new employer’s plan. Cashing it out is also an option but typically leads to taxes and early withdrawal penalties. The right choice depends on your investment preferences, fees and long-term financial goals.
Bottom Line
A 403(b) plan is a specialized form of tax-advantaged retirement account designed for public school teachers and nonprofit employees. Their investment options are relatively limited, so if you are changing employers you might want to roll the funds over into an IRA.
Retirement Planning Tips
- A financial advisor can help you create a financial plan for your retirement needs and goals. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- When you have the choice, an IRA typically offers more investment options than a 403(b), due to IRS restrictions. Here’s what you need to know when comparing a 403(b) vs. IRA.
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