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A retirement plan rollover is a common procedure done by employees for a few different reasons. If you leave a job or retire, rolling over your retirement plan into an IRA may provide some benefits. If your employer had you enrolled in a 403(b) plan, there are some 403(b) rollover rules to be aware of if you decide to move your retirement funds.

Summary

  • A 403(b) rollover allows you to move your funds to a different type of retirement account
  • If you switch jobs or decide to retire, you have the option to roll your 403(b) account into another plan
  • To transfer funds to a new retirement plan you will have to fill out a 403(b) rollover contribution form
  • A 403(b) rollover can open up different investment options

403(b) Rollover Explained

A 403(b) rollover is a procedure that allows you to move funds from your account to a different type of retirement account, such as an:

  • Traditional IRA
  • Simple IRA
  • 403(a) 
  • 401(k)
  • 457(b)
  • 401(a)
  • New employers 403(b)

Rollovers are common when people switch jobs or chose to retire. Moving your funds to a different type of retirement account can open up more investment options and give your more flexibility with your money. Generally, investment options are fairly limited for traditional 403(b) plans.

403(b) Rollover Rules and Procedures

Rolling over your 403(b) plan is a fairly straightforward process. However, there are a few rules to follow to ensure it gets moved over correctly and avoids tax penalties. Below is the standard process to move your funds.


Step 1) Ensure your 403(b) plan administrator completes a “direct rollover” 

  • If you do a direct rollover of funds into a traditional IRA account, you will bypass the mandatory 20% federal income tax levied on retirement fund withdrawals. 
  • You will have to consult with your 403(b) plan administrator to complete the necessary paperwork
  • Once the rollover process begins, you have 60 days to complete it, otherwise, the money is subject to income taxes.

Step 2) Fill out a 403(b) Rollover Contribution Form

 The 403(b) Rollover Contribution Form outlines the following information below that is required to complete the rollover procedure:

  • The amount of your rollover contribution
  • Rollover contribution type – the type of plan you are rolling over
  • Rollover Investment Elections – identify the funds you would like your contributions invested in
  • Sign for authorization of the rollover

 Step 3) Procedure after the 403(b) rollover is completed

  • After your rollover is completed it’s important to ensure the amount reflected in your new plan matches the amount in the contribution form.
  • Ensure your funds are allocated to the correct investment elections stated in your contribution form.
  • Make sure to report your rollover on your income taxes as a “non-taxable” distribution

Important Note: Most rollovers are limited to one every 12 months.

403(b) Rollover Options

The great thing about a 403(b) plan is that it has plenty of rollover options into different retirement accounts. Not all retirement plans are eligible for rollovers into other types of retirement accounts. As previously mentioned, with a 403(b) plan you have the following rollover options:

Let’s take a look at each one in further detail to understand the unique benefits of rolling into these accounts.

403(b) Rollover to Traditional IRA

This is the most common option for self-employed individuals. One of the biggest benefits of rolling a 403(b) plan to a traditional IRA account is the expanded investment options. By nature, traditional 403(b) plans are limited in their investment options. A traditional IRA offers flexibility with where you invest your money. Once your rollover process is all set, you can allocate your funds into: 

  • Mutual funds
  • ETF’s
  • Individual stocks
  • Bonds

Traditional 403(b) plans mainly to allow you to invest in specific mutual funds and annuities. Rolling over into a traditional IRA will provide you with more investment options that can enhance your returns. It’s important to note that there are a few disadvantages to a 403(b) rollover to a traditional IRA.

A traditional IRA tends to have higher fees and will have transaction costs that may not have been charged with a 403(b) plan. However, if you invest money into funds that have low management fees this shouldn’t be much of an issue. In addition to this, if you ever happen to file for bankruptcy or be part of a lawsuit, the funds in your IRA are not subject to protection by ERISA. In contrast, funds in a 403(b) account are subject to protection by ERISA and would not become part of a bankruptcy or lawsuit.

403(b) Rollover to SIMPLE IRA

A SIMPLE (Savings Incentive Match Plan for Employees) IRA is different from a traditional IRA. Traditional IRAs are set up directly by individuals, while SIMPLE IRAs are set up by small business owners for their employees. In 2015 the IRS expanded the retirement plan rollover options to include SIMPLE IRA. So if you have a 403(b) you have the option to roll it into a SIMPLE IRA. 

Rolling your funds into a SIMPLE IRA is different because it has different requirements and contribution limits. For example:

  • A SIMPLE IRA has a higher annual contribution limit than a traditional IRA.
  • For the tax year 2022, a SIMPLE IRA has a $14,000 annual contribution limit, while a traditional IRA is only $6,000.
  • Traditional IRA contributions are only made by the individual, while SIMPLE IRA contributions can be made by both the employer and employee. 
  • SIMPLE IRAs are for companies with no more than 100 employees.

If you have the option a SIMPLE IRA can be a great retirement option to roll your funds into.

403(b) Rollover to 403(a) 

Rollover to a 403(a) plan is not very common. However, it is an available option for people to consider depending on their circumstances. A 403(a) plan is an employer-sponsored annuity-retirement plan. Unlike a 403(b) plan, which is limited to certain employer types, any employer can extend a 403(a) plan to their employees. They function just like a 401(k), with a few differences: 

  • A 403(a) plan is an annuity to which you contribute money through after-tax payroll deductions.
  • Investment options are limited to mutual funds or bank investments.
  • Can be structured as a defined benefit plan or regular 401(k).
  • The defined benefit option allows you to receive fixed payments when you retire until you die.
  • With the regular option, your returns are based on what you and your employer contributed and how your investments performed.

This can be an alternative rollover option that can offer more modest and stable investment returns. However, it is difficult to find many employers that offer this option.

403(b) Rollover to 401(k) 

This is probably one of the most common rollover options when employees switch jobs. One of the main reasons is because 401(k)’s are the most popular retirement plan available for employees. There are a few differences between a 401(k) vs 403(b), but for the most part both plans are very similar. The main differences comes down to the employer type.

However, a 401(k) tends to have more investment options available. In addition, if you want to take out a 401(k) loan, you tend to have more favorable loan terms than a 403(b) plan.

403(b) Rollover to 457

The 457 is another employer-sponsored retirement plan which you can roll your funds into. This plan is very similar to a 403(b) plan. It’s limited to non-profit organizations, state and local government employees, and ministries.

There are two different types of 457 plans, – the 457(b) and the 457(f). The 457(b) plan is designated specifically for state and local government employees. The 457(f) plan is for executives in non-profit organizations.

If you’re not an executive in a non-profit organization, you will be rolling your funds into a 457(b) plan.

Conclusion

As you can see, you have many different options available if you qualify to rollover your 403(b) plan. Each option is unique in what it can offer you depending on your circumstances and employer options. Carefully consider your needs before you decide to move your retirement funds to a different account type.


FAQ’s

How long does a rollover take?

A standard 403(b) rollover takes approximately 2-4 weeks.

Are there penalties or fees to complete a 403(b) rollover?

This will depend on the rules and policies outlined by your current 403(b) plan administrator. Generally, there are no fees with 403(b) rollovers. However, there can be tax penalties if a rollover takes a long time.

How long do you have to roll over a 403(b)

Generally, it must be done in 60 days, otherwise it will be subject to income taxes.

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