How to Transfer From a 403b to an IRA

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A 403b plan is a retirement plan option offered by some non-profit employers. When you leave your job, you might want to roll your 403b plan into an IRA to maintain the tax-deferred status of the account. Other reasons to roll the money into an IRA include potentially lower fees, and a much wider range of investment options. With a 403b plan you can invest only in annuities and mutual funds. An IRA can also invest in individual stocks, bonds and real estate.

  • Decide whether you want to do a direct transfer the money from your 403b account to your IRA or to perform a rollover from your 403b account to your IRA. With a transfer, the money is directly deposited into your IRA without you having to touch it. With a rollover, the money is paid to you first, and you are responsible for redepositing it. However, with a rollover, 20 percent of the money will be withheld in case you fail to complete the rollover. So unless you need to use the money for the short term, a direct transfer is generally preferable.

  • Complete the required transfer forms from your financial institution. The forms can be slightly different between financial institutions, but you will always need to provide your identifying information, including your Social Security number. If you are doing a direct transfer, you will also need to provide the account information of the IRA you are moving the money into.

  • Submit your forms to the financial institution that has your 403b account. If you are doing a direct transfer, you are finished, because the amount will automatically be moved.

  • Redeposit the money from your rollover within 60 days into your IRA account to complete the rollover. If you don't redeposit the money the IRS will consider it a distribution, and you will have to pay any applicable taxes and penalties.

Tips & Warnings

  • When you perform a rollover, you are responsible for redepositing 100 percent of the amount of the rollover even though you receive only 80 percent. For example, if you were rolling over $6,000, you would receive only $4,800 because 20 percent would be withheld for taxes. But you would have to redeposit $6,000 to avoid taxes and penalties.

References

  • Photo Credit tax forms image by Chad McDermott from Fotolia.com
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