How to rollover a 403(b) into an IRA

A 403(b) is an employer pension plan similar to an Individual retirement account. In some cases, cessation of employment or changes in retirement planning may require one to shift the funds and/or assets that have accumulated within a 403(b) into an IRA.

There are specific ways to rollover a 403(b) into an IRA without incurring tax penalties and that can therefore save a taxpayer from making unneeded expenditures as a result of the rollover. This article will discuss the methods by which a 403(b) can be rolled over into an IRA without incurring tax penalties in addition to discussing potential advantages, disadvantages and options surrounding the rollover decision/process.

 Assess qualifying distributions and retirement strategies

Not all funds within a 403(b) may qualify for rollover into an individual retirement account. Specifically, annuity distributions, minimum distributions and hardship distributions cannot be rolled over. (www.money-zine.com) Moreover, becoming familiar with what can and can't be rolled over is important.

It may also be worthwhile to considering the possibility of retaining a 403(b), rolling over a 403(b) into another 403(b) with different financial options, a 401(k) or Roth IRA. For example, a 403(b) may have a matching plan and maximum contribution limits that far outweigh the benefits of rolling over into an IRA. Moreover, it may be advantageous from a retirement planning perspective to utilize the best available option for rollover, which may not necessarily be an IRA.

That said, if one decides to go ahead with the rollover due to cessation of employment, or other factors weighing the different types of individual retirement accounts may be helpful. To be sure of which rollover best suits one's financial planning needs, carefully considering all the options available within each retirement investment vehicle can be beneficial and help inform one as to the financial possibilities. Also, becoming aware of the rules, contributions amounts, taxation of, and age limits on various retirement plan options may help one be better prepared for the future.

Methods and tools for Rolling over a 403(b)

The first step in proceeding with a 403(b) rollover is speaking with the appropriate financial institutions, trustees and account managers to inquire about the process. Depending on the institution, account, financial instruments within the retirement plan etc. different forms may be required. A few of the possible forms needed are provided below.

Forms needed for direct 403(b)-IRA rollover (investopedia.com):

• Direct rollover transfer application
• Contribution form signed and dated by IRA institutions
• Distribution request form
• Acceptance of transfer from IRA provider

Additionally, the rollover cannot take more than 60 days upon receipt of funds from the recipient if the 403(b) beneficiary is the recipient. In other words, if one's employer and IRA servicer are not facilitating the rollover from start to finish, the money could pass through the pension beneficiaries hands. In order to avoid incurring tax on these funds they must be re-deposited and traceable as such into the IRA within the 60 day time limit

Determine the type of Individual Retirement Account (IRA)

Once one has performed the direct rollover of the 403(b) into an individual retirement account, that individual may want to roll it over to another IRA such as a Roth IRA. 403(b)'s cannot be rolled directly into an Roth IRA but the IRA can be rolled over into a Roth. IRA's and Roth IRA's have different rules, salary requirements and contribution age limits that may make a second rollover worthwhile. There are several benefits associated with Roth IRA's that could outperform the advantages of retaining a 403(b) or only rolling over into an IRA. Those benefits associated with Roth IRA's are listed below:

Advantages of a Roth IRA:

• Higher maximum contribution amounts
• More investment choices
• A Roth IRA can be held simultaneously alongside a 403(b)
• No age contribution limit
• Earnings may not be subject to taxation upon withdrawal
• No required withdrawal/distribution age
• Contributions are made with after tax income therefore is non-taxable after withdrawal
• Only earnings on maximum contributions are taxable
• Has exemptions for early withdrawal ex-education expenses

Summary

Rolling over a 403(b) into an IRA is a process within retirement planning and personal financial management that may come about due to changes in employment, available financial options, physical relocation etc.

After one has weighed the best financial options available and chooses to go ahead with a 403(b) rollover, the steps to rolling over funds without taxation should not be too complicated or take more than 60 days if one is adequately prepared and informed.

Once the rollover is complete, the beneficiary may also want to consider a second rollover into a Roth IRA if one qualifies for such. These decisions are the responsibility of the individual however and may be made with the assistance of a financial consultant.

Sources:

1. http://www.investopedia.com/ask/answers/142.asp
2. http://www.403bwise.com/wisemoves/irarollover_vt.html
3. http://www.fairmark.com/rothira/roth401k/compare-ira.htm
4. http://www.fairmark.com/rothira/taxable.htm
5. http://beginnersinvest.about.com/cs/iras/f/tradvsrothira.htm