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What Is a 403(b) Rollover?


In place of a 401(k) plan, you may have the option to save for retirement in a 403(b) plan. Also known as a tax-deferred annuity or TSA, 403(b) plans are designed for employees of certain public schools and tax-exempt organizations. Making a job change means deciding what to do with the money you’ve saved in your plan. The good news is that you can complete a 403(b) rollover so your retirement savings doesn’t get left behind. Let’s break down how it works.

A financial advisor can help create a financial plan for your retirement needs and goals.

403(b) Plan Basics

A 403(b) plan is a tax-advantaged retirement savings account that’s designed for public school employees, individuals who work for certain non-profit organizations and self-employed ministers. If you have access to a 403(b) at work, you can fund your plan through elective salary deferrals. Your employer can also make contributions on your behalf.

Money saved in a 403(b) is allowed to grow tax-deferred. For 2022, you can contribute up to $20,500 or up to $27,000 if you’re age 50 or older and qualify for catch-up contributions. Beginning at age 59 ½, you can begin taking qualified distributions from your 403(b) account. Once you reach age 72, you’re required to take minimum distributions based on your life expectancy.

Those conditions assume you’re saving in a traditional 403(b). If your plan allows it, you may be able to contribute to a 403(b) as a designated Roth account. Designated Roth contributions are made with after-tax income, so they won’t reduce your gross income for the year. But qualified distributions from a Roth 403(b), including earnings, are not taxable in retirement.

What Is a 403(b) Rollover?

A rollover simply means taking money from one retirement savings account and putting it into another. The IRS allows rollovers between different types of retirement accounts, including 403(b) plans. Where you can roll 403(b) savings to depends on whether your account was funded with pre-tax or after-tax dollars.

If you saved in a traditional 403(b) plan using pre-tax money, you can roll your savings into any of the following:

  • Traditional Individual Retirement Account (IRA)
  • Roth IRA
  • 457(b) plan
  • Pre-tax qualified plan, which include 401 plans, profit-sharing plans, money purchase and defined benefit plans
  • Pre-tax 403(b) plan
  • Designated Roth account, which can be a 401(k), 403(b) or 457 plan

If you set up your 403(b) plan as a designated Roth account, your rollover options are more limited. In that scenario, you could only roll your 403(b) savings into a Roth IRA or another designated Roth account.

How a 403(b) Rollover Works

SmartAsset: What Is a 403b Rollover?

A 403(b) rollover allows you to take the money you have in your retirement account and move it elsewhere. Typically, a rollover is something you’d only consider after separating from your employer as 403(b) plans generally don’t allow them while you’re still employed or are under age 59 ½.

So, say you’re a college professor and you decide to take a teaching position at a new university. You could roll your 403(b) from your previous employer over to an IRA. Or you could roll it into the retirement account offered by your new school. Going forward, you could make contributions to your new employer’s retirement plan.

There are two ways a retirement account rollover can be executed: direct and indirect transfers. With a direct transfer, you tell your 403(b) plan custodian where you’d like the money to go. The custodian then transfers the funds to your new account on your behalf.

In an indirect rollover, the custodian sends the funds from your 403(b) to you. It’s then up to you to redeposit the money into a new retirement account. If you don’t make this deposit within 60 days from the date the money was withdrawn from your 403(b), the money is counted as a taxable distribution. You’d owe income tax on it and depending on your age you might also have to pay a 10% early withdrawal penalty.

How to Roll Over 403(b) Funds

If you’d like to roll over your 403(b) money, the first step is knowing what options you have. Again, where you can roll the money to depends on whether you have a traditional 403(b) plan or a designated Roth account.

Rolling 403(b) money into your current employer’s retirement plan might appeal to you if you want to have all of your retirement savings in one place. In terms of the tax breaks offered, 401(k) plans, 457 plans and 403(b) plans are very similar so you wouldn’t necessarily lose anything by moving your savings into one of these accounts.

On the other hand, you may prefer to roll 403(b) money into an IRA if you’re not satisfied with the investment options offered by your current employer’s plan or the fees you’re paying. You also have more control since you can decide where you want to open an IRA. That’s a plus if you’d like to take time to compare investment options and fees at different brokerages.

Once you choose a destination for your 403(b) savings you can then decide if you want to complete a direct or indirect rollover. Between the two, direct rollovers are usually preferable since there’s no risk of triggering any tax penalties. To complete a direct rollover, you’d just have to tell your 403(b) custodian where the money should go and they’ll do the rest.

Keep in mind that if you opt for an indirect rollover, your plan is required by law to withhold 20% of the taxable amount. This 20% withholding goes to the IRS for federal income tax. So again, a direct rollover could make the most sense if you’d like to preserve your savings and avoid tax penalties.

Do You Have to Roll Over 403(b) Accounts?

SmartAsset: What Is a 403b Rollover?

If you decide to change jobs or retire, you don’t necessarily have to complete a 403(b) rollover. You could leave your money right where it is if you’re happy with your plan’s investment options and the fees you’re paying. If you decide later that you’d like to roll the money over you could do so, either directly or indirectly.

Keep in mind that you may be subject to an automatic rollover, depending on your account balance. If your 403(b) holds less than $5,000 your employer could roll it over to an IRA on your behalf. In that case, you’d have to contact the employer or the plan administrator to find out where the money was moved to in order to retrieve it.

Bottom Line

A 403(b) rollover could make sense if you’re worried about any of your retirement savings falling through the cracks when changing jobs. It’s important to understand where you can move the money to before getting started. And be aware of what tax penalties you might face if you choose an indirect rollover.

Retirement Planning Tips

  • Consider talking to your financial advisor about the pros and cons of rolling over 403(b) plan money. If you don’t have a financial advisor yet, finding one doesn’t have to be complicated. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • A 403(b), 401(k) or IRA can all be great ways to save for retirement while enjoying some tax breaks. But you can also open a taxable brokerage account to supplement your savings. Taxable accounts can offer a greater variety of investment options than you might get with a tax-advantaged plan. You’re not subject to annual contribution limits either and many online brokerages now offer commission-free trading.

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