A 403(b) plan is an employer-sponsored retirement account for eligible employees of non-profit organizations, schools, and religious institutions. An Individual Retirement Account (IRA) can take various forms, but all are commercially available accounts used for the purpose of creating sustainable income for retirement. If you have left your current employer and wish to continue to make contributions to your retirement account, it may be wise to convert your 403(b) plan to a traditional IRA.
Preparation
Step 1 – Know the advantages and disadvantages of conversion. Converting your 403(b) account to an IRA has distinct advantages, including the ability to continue to make contributions, added control over your investments, and the ability to move your finances without incurring taxes or penalties. There are disadvantages as well, including additional transaction fees and the vulnerability of your assets to creditors.
Step 2 – Consider the future of your retirement account. If you intend to eventually transfer your finances into a new 403(b) provided by another employer, consider using a “Conduit IRA” rather than a traditional IRA. According to 403bwise.com, once assets are transferred to a traditional IRA, they cannot be moved into another 403(b) account.
Step 3 – Choose a financial institution with which to trust your investment, and open a new IRA account. When converting your 403(b) to an IRA, you are faced with a wide range of financial management companies to choose from. Research your chosen institutions online before making a decision, and do not hesitate to call a representative to ask further questions about the company’s services and features.
Rollover Methods
Step 1 – Choose a rollover method to convert your account. The direct rollover method is the most convenient method, with the transaction taking place directly between the two financial institutions. An indirect rollover is more complicated, and requires you to receive and deposit the funds yourself within sixty days.
Step 2 – Contact the institution that holds your 403(b) account to initiate a direct rollover. According to investopedia.com, you will only be required to complete and sign an authorization form, and your assets will be transferred between trustees at both institutions, either via wire transfer or check. You can monitor the status of your transfer at any time, and you will be notified when the funds have arrived in your new IRA account.
Step 3 – When performing an indirect rollover, you will essentially be withdrawing your entire balance and depositing the funds in your new IRA account yourself. This method can be prudent in certain situations, but extra care must be taken to avoid incurring additional fees. After you receive the check from your 403(b) account, you have sixty days to deposit the funds into an IRA, or you may be liable for a 10% early withdrawal penalty. You will be assessed a 20% federal tax on the withdrawn funds, but according to 403bwise.com you may receive this amount back in your federal tax refund.
Tips
It is not possible to convert a 403(b) plan to a Roth IRA. It is possible, however, to transfer the funds to a traditional IRA first, and then transfer the funds from the traditional IRA to a Roth IRA.
References Rolling a 403(b) into an IRA
Can I roll over a 403(b) plan into an IRA?
Moving Your Plan Assets?
