First, you’ll need to decide what kind of IRA account you’re going to rollover the money into. For example, if you plan to transfer it into a traditional IRA or SEP IRA rollover plan, there won’t likely be any significant change to the amount of money that you’re moving, as no new taxes will need to be applied. This isn’t the case if you’re moving the money to a Roth IRA.
This is the case because 403b plans – which are only extended to a specific group of people – are treated as qualified plans by the IRS, as the money in the account is contributed before taxes (although, legally, these plans aren’t considered to be qualified under the current tax code). In a Roth IRA account, the contributions have already been taxed. If you do a 403b rollover into a Roth IRA, you will have to pay taxes on the amount you roll over. However, the benefit is that when you need to take money out of the Roth IRA, you won’t have to pay taxes on it, as you will with monies withdrawn from a traditional IRA.
This is just one of the considerations that you need to make when you’re setting up your 403b IRA rollover, and it’s something that you should discuss with your financial advisor. You’ll also need to decide whether you’re going to do a direct or indirect transfer. The differences are the way that the money is handled and whether or not taxes are applied. If you do a direct transfer, the bank takes the money directly from the pre-existing 403b plan and rolls it into a new IRA. You don’t handle the money and no taxes are imposed (unless you’re going to a Roth plan).
On the other hand, if you decide that you want to do an indirect transfer on your 403b IRA rollover, then the money is taken from the plan and issued to you directly. However, 20% of the total is withheld from this transfer for taxation purposes. You have sixty days to deposit the full amount of the check that you received from the 403b plan into a qualified IRA before the IRS considers it to be a withdrawal – not a rollover. If you do complete the 403b rollover within the appropriate window, the remaining 20% is placed into the account. Since this usually involves a great deal of hassle, most people opt not to do this when they’re doing an IRA rollover.
Any questions or concerns that you may have about your 403b IRA rollover plan should be taken up with your financial adviser before initiating the transfer so that you can be sure to set up the exact kind of account you want. When you’re ready to proceed, make sure that you have all of the necessary information in hand so that any problems that arise during the transfer can be resolved easily.