What is a 403b Rollover?

Anna B. Smith

A 403b rollover is the transfer of money from a 403b retirement account into another retirement plan, such as an individual retirement account (IRA) or 401k account. This is typically accomplished without requiring the individual holding the retirement plan to pay taxes on that transferred money. The money may then continue to grow through the guidance of the company administering the new retirement plan.

Retirees sometimes transfer funds from one type of retirement plan to another.
Retirees sometimes transfer funds from one type of retirement plan to another.

A 403b is a retirement plan available to teachers and other employees of educational and non-profit organizations in the U.S. Employees who choose to participate in a 403b plan usually have a certain percentage of their paychecks put into the plan. This money is removed prior to the deduction of taxes from the income. The money stored in the 403b is then taxed when it is withdrawn, which usually occurs when an employee retires.

Retirees are not required to pay taxes on 403b rollovers.
Retirees are not required to pay taxes on 403b rollovers.

This type of retirement plan was established by the U.S. federal government. The name is derived from the section of tax code that defines its parameters and operation. A similar retirement plan for individuals working in a traditional, for-profit organization is known as a 401k.

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An IRA is typically administered by banks or investment companies. Through one, an individual can invest any portion of his income into the account, which is not taxed until it is withdrawn — again, usually at retirement. This money may be placed into one individual stock, a group of stocks, bonds, or a variety of other investment vehicles.

When transitioning money during a 403b rollover, the account holder may choose to transfer all or part of the accumulated money. If the individual has not yet reached retirement age, a tax penalty may be associated with any funds he elects to keep, rather than re-invest. To verify retirement age requirements, U.S. citizens should check with the Internal Revenue Service.

The 403b rollover should be completed within 60 days of the money being released from the retirement plan. This may be accomplished electronically or through a physical check hand-delivered by the applicant to the new financial institution. If the rollover is not completed within the allotted time frame, a tax penalty is typically assessed.

If the account holder chooses to have the 403b rollover delivered in the form of an actual, physical check, 20% of the total amount will usually be withheld by the plan's administrator. This withheld percentage is then typically paid by the account holder, out-of-pocket, to the new account. Once 100% of the check has been deposited, the withheld 20% is released back to the account holder. For this reason, most individuals have their 403b monies transferred directly to the new retirement account by the plan administrator. In order for the total amount to be transferred tax-free at the time of the rollover, 100% of it must be deposited into a new retirement plan.

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