What Should I Do With My 403(b) Once I Retire?

If you have an employer-sponsored retirement plan, like a 403(b), you have three options when deciding what you should do with it once you retire. You can retain your old 403(b) if the plan allows it, roll your money over into an IRA or a Roth IRA, or withdraw your money and put it into a taxable portfolio. There are several steps for each process, and you should have an understanding of the tax implications and withdrawal rules before making any decisions.

A financial advisor can answer any questions you have about your 403(b) or other retirement accounts. 

What Is A 403(b)?

A 403(b) is a tax-advantaged retirement plan offered by public schools, 503(c)(3) charities and some faith-based organizations.  

These employer-sponsored retirement plans are very similar to 401(k)s. With either type of plan, you can automatically contribute pre-tax money from each paycheck into your account. You receive a tax deduction for these contributions, which are capped at $24,500 for 2026. ¹  Meanwhile, your employer can also make matching contributions at their discretion.

Once you turn 59 ½ or meet certain special circumstances, you can make withdrawals from your 403(b) but you’ll pay income taxes on all distributions, including the underlying principal. There is an additional 10% tax penalty for non-qualified distributions taken before this age. 

In practice, there are two main differences between a 403(b) and a 401(k). First, employer contributions tend to be much lower with a 403(b). This is in part because of the nature of participants and the tighter budgets that nonprofits tend to have. Second, 403(b) plans can only offer annuities and mutual funds while a 401(k) can offer a much wider range of investment options. In practice, this means that 403(b) plans tend to invest heavily in annuities and are often administered by insurance companies. 

403(b) Accounts and RMDs

By investing heavily in annuities, a 403(b) can change the math on required minimum distributions (RMDs).

All pre-tax accounts, including the 403(b), are subject to required minimum distributions (RMDs) once you turn 73, or 75 if you were born in 1960 or later. However, annuity contracts within a 403(b) can affect RMD calculations differently based on the nature of the asset. In general, there are three main cases: First, annuity contracts in annuitization typically do not count toward your portfolio’s value for the purposes of RMD calculations. Instead, the annuity’s income is considered sufficient to meet the contract’s minimum distribution.

Second, annuity contracts not yet in annuitization do typically count toward the value of your portfolio for the purposes of RMDs. If you turn 73, or 75, with significant annuity holdings that have not yet entered the payment phase, you may need to sell more liquid assets to satisfy your RMD.

Third, there is a special category of annuity called a qualified longevity annuity contract (QLAC). As long as you begin taking income from a QLAC before age 85, it will not be included in the value of your portfolio’s RMD.

Retiring Early? The Rule of 55 May Give You Penalty-Free Access

If you leave your job during or after the calendar year you turn 55, you may be able to withdraw from that employer’s 403(b) without paying the usual 10% early withdrawal penalty, even though you haven’t reached 59 ½. This is commonly known as the Rule of 55, and it applies to 403(b) plans the same way it applies to 401(k)s.

A few conditions matter here. The rule only applies to the plan held by the employer you’re actually separating from, not to 403(b) accounts left behind with previous employers. Your plan must also permit this kind of withdrawal. If you roll your 403(b) funds into an IRA or a new employer’s plan, you lose access to this option entirely, and the money reverts to the standard 59 ½ rule.

Income tax still applies to any withdrawal made under the Rule of 55; only the 10% penalty is avoided. For retirees weighing whether to leave a 403(b) in place, roll it into an IRA, or cash it out, as discussed below, this is worth factoring in if you’re retiring between 55 and 59 ½ and may need access to the funds before the usual penalty-free age.

Retiring With a 403(b)

When you retire, your options for a 403(b) are generally the same as with a 401(k).  have three main options that you can apply in whole or in part:

1. Leave Your Money In Place

First, you can leave your money invested in the 403(b) and take distributions over time.

This is often an effective option with 403(b) plans. Since 403(b) plans tend to invest heavily in retirement annuities, your portfolio is likely to be structured around long-term or lifetime income. This can make leaving your plan in place a strong option compared with something like a 401(k) holding bonds and equities that need more management.

This can also be a good option if your 403(b) plan offers particularly strong investments or favorable terms for plan participants.

However, this option will depend on the rules of your specific plan and its administrator. Your 403(b) may not allow former employees to stay invested or you simply may not want to stay entangled with former employers. You also may want to avoid the risk of future changes to the plan, its terms, or its administrator. 

2. Roll Over Your Money into an IRA 

Moving your money to an IRA is a common choice for retirees with an employer-sponsored retirement plan. The main advantage is that it gives you control over your assets. With an IRA, you don’t have to keep a lifetime relationship with your former employer and you aren’t subject to any future changes it or its administrators make.

The first way to do this is by rolling over your money to a traditional IRA. This has no immediate tax implications, since you will be moving your money from one pre-tax portfolio to another. However, it’s important to make sure that there are no restrictions on any individual assets that would force you to cash out or otherwise withdraw from those investments. This portfolio will then be subject to the same income taxes and RMD requirements as the original 403(b).

The second option is to convert your money into a Roth IRA. If you do this, you will owe income taxes on the full value of this conversion in the year you make it. As long as you are older than 59½ you can take cash to pay those taxes from your retirement account.

Once you convert money to a Roth IRA, qualified withdrawals can be made tax free. You will pay no taxes on future withdrawals, nor will your balance be subject to RMDs. The result tends to be a high up front cost in exchange for significant long-term value.

3. Move Assets to a Taxable Portfolio

Finally, you can move your assets from your 403(b) to a standard brokerage account with no special tax status. This is otherwise known as taking a “total distribution.” As with moving your money to an IRA, given the significant presence of annuity contracts in 403(b) plans, make sure that you actually can transfer or cash out all of your assets.

Taking a total distribution is generally seen as the worst of your available options. As with a Roth IRA, you will need to pay income taxes on the entire amount in the year that you take the distribution.

Once you cash out your assets and reinvest them in a taxable account, the tax status of any future withdrawals will be based on the nature of the underlying assets. For example, if you hold a bundle of equities, you will generally only pay capital gains taxes on realized returns going forward and won’t retain the tax-deferred status of a 403(b).

Factors to Consider Before Choosing a 403(b) Retirement Option

Before deciding whether to keep your 403(b), roll it over or move the money to a taxable account, it can help to assess how each choice fits your overall financial situation. One key factor is the investment lineup available in your current plan. Some 403(b) programs offer low-cost institutional funds or strong annuity contracts, while others may have limited choices or high expenses. Comparing your plan’s costs and flexibility to what you could access in an IRA can clarify whether a rollover adds value.

Your tax outlook in retirement is another important point. A traditional IRA rollover keeps your savings tax deferred, but converting to a Roth IRA allows you to pay taxes now in exchange for tax-free withdrawals later. The right approach depends on your retirement income, the timing of Social Security, and whether future RMDs could push you into a higher tax bracket. Evaluating your expected income path can help you choose the option with the best long-term tax effect.

Plan-specific rules may also influence your decision. Some 403(b) plans restrict which assets can be moved and how annuity contracts are handled in a rollover. Others may require you to liquidate investments before transferring them. Reviewing the plan document or contacting the administrator can help you avoid unexpected taxes or surrender charges.

Your personal goals matter as well. If you want simplicity and full control over asset allocation, an IRA can give you more flexibility than most employer plans. If predictable income is a priority, keeping annuity-based investments inside your 403(b) may align better with your retirement strategy. Each option can work, but your circumstances determine which is most practical.

Run the numbers to see if your retirement savings is on track:

Bottom Line

When you retire, deciding what to do with your employer-sponsored retirement plan is an important consideration. In general, you have three options for your 403(b): leave the account with your former employer, roll it into an IRA or cash it out and potentially reinvest the proceeds in a taxable brokerage account. Each choice can have different tax and investment implications, so a financial advisor can help you evaluate which approach may fit your long-term goals.

“If you’re in your 30s or 40s and have a small to mid-size 403(b) balance and plan to retire at the normal retirement age in your mid-60s, a rollover to a Roth IRA is a strong option to consider. It allows you to start generating tax-free growth and gives you a broad spectrum of investment options that likely aren’t available in your 403(b),” said Tanza Loudenback, CFP®.

Tanza Loudenback, CFP® provided the quote used in this article. Please note that Tanza is not a participant in SmartAsset AMP, is not an employee of SmartAsset and has been compensated. The opinion voiced in the quote is for general information only and is not intended to provide specific advice or recommendations.

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