Are You Eligible for a 403b IRA Rollover?

If you’re thinking about performing a 403b IRA rollover to a new IRA, there are a few things that you’ll want to keep in mind when rollover your IRA. As you’ll soon learn there are some special considerations that will make rollover process easier and help to maintain the tax deferred status of your money.

In all rollover matters, know that like can accept money from like.  In short, moving money between two 403b IRAs is the easiest course of action, although you’ll have to have two separate accounts in order to complete the transaction.  In addition, traditional IRAs, 457(b) plans and SEP IRAs can receive funds from a 403b rollover without penalty.  Check with the manager of the target IRA to get all the details you need about how to setup these accounts.

If the target IRA is a Roth IRA, know that it can accept a 403b IRA rollover, although you’ll be required to pay taxes on any money you move into the new account.  This is because contributions made to 403b accounts are made with pre-tax money, but funds in Roth accounts come from after-tax contributions.  If you choose to move your money out of a tax-deferred account (like a 403b), rest assured that the government will want to get its piece of the pie.  In addition, be sure that the new account is not a Designated Roth account; these are very different from Roth accounts and the 403b IRA rollover rules reflect that difference.

Another big exception to your 403b IRA rollover options is a Simple IRA, which cannot accept a rollover from a 403b.  But there is a much more common reason that you – and your account – won’t be eligible for a 403b IRA rollover.  This situation is tied to the reason that most people want to perform retirement account rollovers in the first place – your benefits eligibility at a new job.

When you change jobs, part of your benefits package is often a new IRA.  The management of this new account may have a better track record for customer service or a better yield over the last five years than your current 403b IRA account.  In addition, you may also want to consolidate all your investments under one roof to take advantage of easier management.

Any one – or all – of these reasons is enough for you to consider a 403b IRA rollover.  Just don’t make the mistake of assuming that the new IRA is active and ready to go from the start of your employment.  The rules of each company’s retirement plans are different, and your new account may not be fully active when you think it is.  Fortunately, it’s a simple matter to check on this.  A call to the manager of the new IRA will confirm the status of your new IRA and let you know whether or not it’s ready for a 403b IRA rollover.

If you don’t confirm this eligibility, you run the risk of opening yourself up to withholding, penalties, and taxes for the fiscal period in which the mistaken transfer attempt occurs.  A mistake in the rollover can cause the money to be reclassified as a withdrawal, which negates the whole purpose of the retirement account in the first place.  Take care to ensure that your new account is ready for your 403b IRA rollover and you’ll avoid this nasty situation entirely.