Moving to a new university, research institute, or company is exciting, but it often leaves one task undone: deciding what to do with your old retirement plan. A rollover of a 403b to an IRA is one option. It is not the only one, and it is not always the right one.
This article is built around questions. Instead of telling you what to do, it walks through the questions worth asking before you roll over a 403(b) to an IRA, so you can make the decision with a clear view of the tradeoffs.
Your Options for an Old 403(b)
When you leave an employer, you generally have four choices for your 403(b):
Leave it in the old plan, if the plan allows.
Roll it to your new employer's plan, if that plan accepts rollovers.
Roll it to an IRA.
Cash it out, which may trigger income taxes and possibly an additional 10% tax if you are under 59 1/2.
Each has pros and cons. The questions below can help you compare them.
Question 1: What Do I Gain or Lose by Leaving the Plan?
Possible advantages of an IRA
Broader investment choices than many employer plans offer.
Simplified management, especially if you combine several old accounts.
More control over how and when you take distributions.
Possible advantages of staying in an employer plan
Institutional pricing: Some employer plans offer investment options with lower costs.
Creditor protection: Employer plans and IRAs can have different levels of protection under federal and state law.
Plan-specific features: Some plans offer options that do not carry over to an IRA.
Compare costs, investment options, and services side by side before deciding.
Question 2: Am I Leaving Before Age 59 1/2?
If you leave your employer in or after the year you turn 55, you may be able to take withdrawals from that employer's plan without the additional 10% tax. That exception generally does not apply once the money is rolled into an IRA. If you may need the funds between 55 and 59 1/2, this detail can matter.
Question 3: Should I Do a Direct or Indirect Rollover?
Direct rollover
The money moves straight from the 403(b) to the IRA or new plan. Taxes are generally not withheld, and the process tends to be cleaner.
Indirect rollover
The plan sends you a check, and you have a limited window, generally 60 days, to deposit it into an IRA or eligible plan. The plan typically withholds a portion for taxes, so you may need to make up that amount from other funds to roll over the full balance. Missing the deadline may make the distribution taxable.
For many people, a direct rollover is simpler. Check current IRS guidance on rollover rules.
Question 4: Do I Have Roth Money in My 403(b)?
Many 403(b) plans offer a Roth option. Roth 403(b) money can generally be rolled into a Roth IRA, while pre-tax money goes into a traditional IRA. Mixing them up can create tax problems. It is also worth understanding how holding periods for Roth accounts may apply after the rollover.
Question 5: Do I Plan to Use Backdoor Roth Contributions?
Some higher earners make nondeductible IRA contributions and convert them to Roth. If you have pre-tax money in traditional IRAs, the IRS pro rata rule may make part of any conversion taxable. Rolling a pre-tax 403(b) into an IRA could affect that strategy. Rolling to a new employer plan instead may be an option to consider.
Question 6: Are Any of My Investments Annuity Contracts?
Some university 403(b) plans hold annuity contracts. Certain annuity-based accounts may have surrender charges, transfer restrictions, or payout rules that affect how and when money can be moved. Review your contract terms or ask the plan provider before initiating a rollover.
Question 7: Will I Keep Working Past RMD Age?
Required minimum distribution rules generally apply to IRAs once you reach a certain age. For some employer plans, people who are still working may be able to delay RMDs from their current employer's plan. Rolling old accounts into a current employer plan, if allowed, may affect your RMD timing. RMD ages have changed recently, so check current rules.
Question 8: How Does This Fit My Overall Portfolio?
A rollover is a good moment to review your investments as a whole. Consider your asset allocation, risk level, and whether you are holding overlapping funds across accounts. Summit Retirement Advisors' Asset Management Overview covers asset allocation, risk analysis, and diversification. Diversification does not guarantee a profit or protect against loss.
For a broader look at when combining accounts may make sense, see When Is It Time to Consolidate Your Retirement Accounts?.
How Summit Retirement Advisors Helps With Career Transitions
Summit Retirement Advisors works with professionals who move between institutions, take leadership roles, and grow research careers. Its Financial Planning Overview lists employer benefits optimization, including retirement plan account options, as well as retirement planning and comprehensive financial planning.
The firm is located at 310 Ferry Street, Lafayette, IN 47901, and works with "research-driven professionals, scientists, professors, founders, and university leaders" who want clarity without sacrificing their time. Its approach centers on listening first, translating complexity into clarity, collaborative refinement, protecting your time, and long-term planning.
Review Your Options Before You Move Money
If you have changed institutions and are unsure what to do with your old 403(b), a conversation may help. Book an appointment or call 765-447-1330. You can also sign up to receive the firm's newsletter on the contact page.
Frequently Asked Questions
Can I roll over my 403b to an IRA?
In most cases, yes, once you leave your employer. Some plans also allow in-service rollovers in certain situations. Check your plan rules.
Is there a penalty to roll over a 403b to an IRA?
A direct rollover is generally not a taxable event and does not trigger a penalty. An indirect rollover that is not completed within the allowed window may be taxable.
Should I roll my old 403b into my new employer's plan or an IRA?
It depends on costs, investment options, withdrawal flexibility, creditor protection, and whether you plan to use backdoor Roth contributions. Compare both before deciding.
How long do I have to roll over a 403b?
For an indirect rollover, you generally have 60 days from receiving the funds. For a direct rollover, there is usually no deadline, and you can often leave the money in the old plan.
Can I roll a Roth 403b into a Roth IRA?
Generally yes. Roth 403(b) money can typically be rolled into a Roth IRA. Holding period rules may apply.
What happens if I leave my 403b with my old employer?
The account generally stays invested under the old plan's rules. You will still need to monitor it and keep your contact and beneficiary information current.
Securities offered through Regulus Financial Group, LLC, Member FINRA/SIPC. Advisory services offered through Regal Investment Advisors, LLC, an SEC Registered Investment Advisor. Regal Investment Advisors and Regulus Financial Group are affiliated subsidiaries of Regal Holdings of America, LLC. Insurance products are offered through Summit Financial Group of Indiana. Summit Retirement Advisors and Summit Financial Group of Indiana are affiliated but independent of the Regal entities. This article is for general educational and informational purposes only and is not tax, legal, or investment advice, nor a solicitation to buy or sell any security. Information is from sources believed to be accurate but is not guaranteed. Investing involves risk, including the possible loss of principal. Diversification and asset allocation do not guarantee a profit or protect against loss. Past performance is no guarantee of future results. Please consult with a qualified professional regarding your individual situation.
