How to Roll a 403B Into a Roth IRA
The 403(b) is a retirement vehicle that allows employees of non-profit, educational and certain religious and hospital organizations to accumulate retirement savings, tax-deferred. As with a 401(k) at a for-profit organization, your contributions are deducted from your salary and your employer can choose to match your contributions. Under certain circumstances -- when you leave your non-profit employer, for example -- rolling the 403(b) into a Roth IRA is an option to consider. A tax or financial professional is the best source of advice on whether such a rollover is a good idea for you.
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Instructions
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Contact your 403(b) plan administrator.
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Ask to have your 403(b) distribution rolled directly into your Roth IRA in what is known as a trustee-to-trustee transfer. This means the funds will go not to you but straight to the financial institution that handles your Roth IRA.
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Glory in the satisfaction of having avoided a hefty tax bill! As long as the money in your 403(b) does not go to you before it is deposited in your Roth IRA, the IRS will not levy income tax or any added penalty. If you choose to have a check mailed to you, you will expose yourself to a tangled web of withholding rules and possible penalties. Get advice from a tax professional to help you navigate. You will also be required to deposit the funds from your 403(b) into your Roth IRA within 60 days of receiving them.
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Keep careful records. You can freely withdraw from a Roth IRA your yearly contributions. Those contributions are made with earned income that was subject to tax when it was paid to you. The money you contributed to your 403(b) was deducted from your paycheck before any taxes were taken out. According to IRS rules, if you withdraw from your IRA -- before you reach age 59 1/2-- money that was rolled over from an account funded with pretax dollars, you may be subject to a penalty. In addition, you cannot withdraw until age 59 1/2 any interest earned, even on ordinary annual contributions, without incurring a penalty. Be very careful, then, when you take out money from your IRA, to withdraw only the principal from your regular annual contributions. There is one notable exception to the early withdrawal rule: If you use the money you take out to buy or build your first home, the penalty will be waived.
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Tips & Warnings
If you are interested in depositing the funds from your old 403(b) into a new 403(b) at a later date, take advantage of the Conduit IRA. This account will allow you to avoid commingling your 403(b) funds with any existing Roth IRA funds. Any commingling would prevent your being able to include the funds from your old 403(b) in a new 403(b).
Always consult a trusted tax and/or financial adviser about the consequences of any rollover of retirement money.
