Rolling over a 403(b) account is technically a distribution, but, because you’re depositing the funds into another tax-advantaged retirement account, you won’t pay any early withdrawal penalty or taxes. The only caveat is you must deposit any 403(b) distributions into a qualified account within 60 days of receiving it. Often a plan administrator or financial institution will transfer assets automatically, which will ensure it happens quickly.

You can roll over a 403(b) into an IRA, a SEP IRA, a SIMPLE IRA, a 457(b), a 401(k), or even another 403(b). You can roll over the funds into a designated Roth account in any of those plans, but you’ll owe income taxes on the entire amount unless the rollover comes from a designated Roth 403(b) account. Note that Roth 403(b) accounts cannot be rolled over into pre-tax retirement accounts, only other Roth accounts.

Here are the distribution options for a 403(b) plan for a retired teacher who is age 72 in 2023:

  • Required minimum distributions (RMDs): You are required to take RMDs from your 403(b) plan starting in the year you turn 72. The amount of your RMD is calculated using a formula based on your account balance and your life expectancy. You can take your RMDs in a lump sum, in installments, or through an annuity.
  • Lump-sum distribution: You can take your entire 403(b) balance in a lump sum, but it also means that you will have to pay taxes on the entire amount in the year you receive it.
  • Installment payments: You can take your 403(b) balance in installments over a period of time. This option spreads out the taxes you pay over a longer period of time, but it also gives you less control over your money. The amount of each year’s installment is determined by a formula provided by Internal Revenue Service at their website.  The formula is:  Account Balance at year end divided by your life expectancy in the current year.
  • Annuity: You can convert your 403(b) balance to an annuity. This will provide you with a guaranteed income stream for life. However, you will have to pay taxes on the entire amount of the annuity in the year you receive it.

Here are some additional things to consider when choosing a distribution option for your 403(b) plan:

  • Your tax bracket: If you are in a high tax bracket, you may want to consider taking your RMDs in installments to spread out the taxes you pay.
  • Your investment goals: If you want to continue to grow your money, you may want to consider leaving your 403(b) balance invested. However, you will need to take RMDs starting in the year you turn 72.

a 403(b) plan can also be rolled into an individual IRA account[1]. This is a common way to preserve the tax benefits of your retirement savings when you leave your job.

There are two ways to roll over a 403(b) plan to an IRA:

  • Direct rollover: The 403(b) plan administrator will directly transfer the funds to your IRA custodian. This is the preferred method, as it minimizes the risk of losing money or having to pay taxes.
  • Indirect rollover: The 403(b) plan administrator will send you a check for the amount of the rollover. You then have 60 days to deposit the check into your IRA custodian. If you do not deposit the check within 60 days, you may have to pay taxes on the amount of the rollover and a 10% early withdrawal penalty if you are under age 59½.

When you roll over a 403(b) plan to an IRA, you can choose to roll over the entire balance or just a portion of the balance. You can also choose to roll over the funds into a traditional IRA or a Roth IRA.

If you roll over the funds into a traditional IRA, the money will grow tax-deferred until you withdraw it. If you roll over the funds into a Roth IRA, the money will grow tax-free. However, you will have to pay taxes on the money when you withdraw it from the Roth IRA.

Rolling over a 403(b) plan to an IRA is a good way to preserve your retirement savings and give you more investment options. However, it is important to carefully consider your individual circumstances before making a decision. You should work with a financial advisor to determine the best option for you.

Here are some of the benefits of rolling over a 403(b) plan to an IRA:

  • You can choose from a wider range of investment options.
  • You have more control over your money.
  • You can avoid investment fees charged by the 403(b) plan.
  • You can consolidate your retirement savings into one account.

If you are considering rolling over your 403(b) plan to an IRA, we recommend that you work with a financial advisor, like Trusted Financial to get personalized advice.

[1] Most people who choose to roll over to an IRA roll the entire value of their 403B plan. However, you also have the option to do a partial rollover, putting some of your money into an IRA but retaining a balance in the 403B plan.