Can I Roll a 403B Into a Roth IRA?
A Roth IRA provides a special tax structure that allows retirement savings to grow tax-free. A 403B plan is an employer plan offered to employees of tax-exempt organizations. Some 403B plans have Roth structures, though most operate on a traditional structure of tax-deferral. When you leave the employer, you can rollover the money. Depending on the 403B structure and the chosen Roth IRA custodian, it is a one-step or two-step process.
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Roth 403B
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If the existing 403B is already a Roth structure, the only rollover option is to roll the money into a Roth IRA. Find a Roth IRA custodian at a bank, brokerage firm or specialized certified public accountant (CPA) firm offering the investments that satisfy your overall investment objectives. Open the new Roth rollover IRA and complete all required paperwork with both the new custodian and your existing 403B plan provider.
Traditional 403B Structure
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A traditional 403B structure takes salary-reducing contributions and puts them into the retirement savings account. Employers might match or make non-elective contributions as well. Elective contributions reduce your annual income, thus reducing your tax bill. All money in the 403B remains tax-deferred until it is withdrawn, at which point it is added to annual income. Rollovers generally move the traditional 403B funds into a traditional rollover IRA. The process is the same as moving a Roth 403B structure.
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Roth Conversion
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If you own a traditionally structured 403B plan and want to convert it into a Roth IRA, you can. The process is called a Roth conversion. The Internal Revenue Service doesn't require the rollover process to move the 403B traditional assets into a traditional IRA first; you can perform a rollover and conversion in one step if the custodian allows it. Some custodians require a traditional rollover first with an internal Roth conversion taking place afterward. This is an administrative decision, and the only effect of the extra step is that it may delay the conversion by a couple weeks. In many cases, the internal conversion doesn't take that long.
What You Need To Do
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To perform a Roth conversion, you must pay taxes on the converted amount. This means the money coming out of the 403B is added to annual income. The government makes periodic adjustments to the payment schedule. For example, taxes due on 2010 Roth conversions can be spread out over 2011 and 2012. However, taxes due on 2011 conversions must all be paid in 2012. A 1099-R is distributed by the 403B plan administrator. You record the income on Line 15 of personal taxes, Form 1040.
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