Can You Roll Over a 403b?

A 403(b) is an employer-sponsored retirement account that offers employees various tax benefits. The lesser-known cousins to corporate 401(k) plans, 403(b) plans are only available to certain nonprofit organizations, such as schools or certain religious organizations. Fundamentally, a 403(b) operates much like a 401(k) plan, including the provision allowing rollovers. If you participate in a 403(b) and leave your job, you have options when deciding what to do with your money.

Eligibility to Withdraw

Generally, you can't take money out of your 403(b) plan until you either leave your job or reach the age of 59 1/2. While there are certain exceptions, such as if you become disabled or go on active duty as a Reservist, most employees won't be able to tap their 403(b) until they change jobs or retire. At that point, you usually have the option to either leave the money in your employer's plan or roll it over to a new plan.

Rollover Options

Since a 403(b) is a tax-deferred account, you can roll over your 403(b) plan into most other types of tax-deferred accounts. For example, if you have an individual retirement account, you can roll your 403(b) plan over into your IRA. If you start a new job, you can also roll over your 403(b) into your new employer's 403(b) plan, if the employer offers one.

The Internal Revenue Service publishes a rollover chart that lists the following types of accounts as eligible to receive a 403(b) rollover:

  • traditional IRA
  • governmental 457(b)
  • qualified plan, such as a 401(k)
  • 403(b)

You can also roll over your 403(b) into a Roth IRA or designated Roth account within a qualified plan, but you may face tax consequences.

Rollover Benefits

The prime benefit of rolling over a 403(b) is that you don't have to take a distribution from the account. Since 403(b) plans are funded with pre-tax money, anything you take out of your 403(b) is fully taxable. By rolling over your account, you keep your money in a tax-advantaged wrapper and face no tax consequences. An exception to this rule is if you roll over your 403(b) into a Roth account, either in an IRA or in a qualified plan. Because Roth accounts are funded with after-tax dollars, any rollover to a Roth account will trigger income tax on the entire rollover amount.

Direct Vs. Indirect Rollover

The easiest and safest way to roll over your 403(b) plan is to do a direct rollover, in which your money transfers electronically from the trustee of your old plan to the trustee of your new plan. If you choose an indirect rollover, your plan trustee sends you a check directly, and you only have 60 days to get the money into a new account. Your trustee will be required to withhold 20 percent of your rollover, so if you want to fund the full amount, you'll have to come up with that 20 percent from another source.

If you fail to complete your rollover within 60 days, the IRS will consider your rollover to be a distribution, and you'll owe tax on the full amount. If you're under age 59 1/2, you might also owe an additional 10 percent early withdrawal penalty.