Can You Roll Over a 403(b)?

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, the 403(b) plan characteristics operate 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.

What Counts as Eligibility to Withdraw From a 403(b)?

Generally, according to the IRS 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.

Are There Rollover Options for a 403(b)?

Since a 403(b) is a tax-deferred account, you can rollover 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, rolling over a 403(b) into your new employer's 403(b) plan is also an option, if the employer offers one.

The IRS 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)
  • SIMPLE IRA (after 2016)

Bear in mind that rolling over a 403(b) into a SIMPLE IRA requires having the SIMPLE account for at least two years prior to the rollover. 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.

What Are the Benefits of a 403(b) Rollover?

The prime benefit of rolling over a 403(b) is to avoid taking a taxable and possibly penalized 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 nondeductible and funded with after-tax dollars, any rollover to a Roth account will trigger income tax on the entire rollover amount.

What Is the Difference Between a Direct vs. Indirect Rollover?

The easiest and safest way to rollover 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 your 403(b) rollover is not the full amount, that ​20 percent​ withholding will be taxed as income and may also incur a ​10 percent​ penalty for early distribution.

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.