403(b) Rollovers

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403(b) Rollovers

A 403(b) rollover is the moving of a 403(b) plan from its current custodian (the company holding it) to another. The following requirements must be met so that the 403(b) may keep its tax-deferral:

• The new 403(b) plan must accept rollovers.
• If you prefer (or if the new 403[b] does not accept rollovers), your original 403(b) funds can be rolled over into a traditional IRA. (Rollovers into Roth IRAs will also be allowed in some circumstances.)
• The full amount from the original account must be placed into the new 403(b) (or IRA) within 60 days. If a lesser amount is rolled over, penalty taxes will be applied.

Exceptions to the rule

The IRS may allow exceptions to the 60-day rule for provable hardships. This may be done in cases of casualty, disaster, or other events beyond the reasonable control of the individual, and does not include foreseeable expenditures, such as the purchase of a home or college tuition.

How you can move funds

You can move the funds via a direct rollover (trustee-to-trustee transfer), in which the funds are transferred from the old custodian to a new one without you touching them. This is usually the smoothest method because it doesn’t incur tax penalties or withholding by the IRS.

You can also remove the money from the old account and put it into the new account yourself. However, with this method, the IRS requires that 20% of the funds be withheld for tax purposes, even if you intend to roll the money over to a new 403(b). You will then have to deposit the full rollover amount in order to avoid an early withdrawal penalty. This means you will need to come up with an amount equal to the 20% that was withheld. Once you have done so, however, the withheld 20% will be returned to you.

Other rules

You are allowed to roll over a 403(b) account into most other qualified retirement plans (if the plan accepts rollovers), including other 403(b) plans and 401(k) plans, as well as traditional individual retirement accounts and Roth IRAs. (Keep in mind that if you roll over previously untaxed funds to a Roth IRA, you will be taxed on the rollover.) If you have a Roth 403(b) (i.e., funded with after-tax dollars), the Roth 403(b) can be rolled over only into another Roth 403(b) or Roth IRA.