Can a 403(b) Be Rolled Into a 401(k)?

It is possible to move funds from a 403(b) plan to a 401(k) plan through a process known as a rollover. This action is common when an individual changes jobs, moving from an employer that offers a 403(b) to one that provides a 401(k). A 403(b) is a retirement plan for employees of public schools, certain non-profits, and churches, while a 401(k) is offered by for-profit companies.

Both plans allow for pre-tax contributions that grow tax-deferred, and because of this similar status, the Internal Revenue Service (IRS) permits rollovers between them. A successful rollover allows you to consolidate retirement assets, which can simplify account management. The ability to perform this rollover ultimately depends on the rules of both the old 403(b) and the new 401(k) plan.

Determining Rollover Eligibility

The first step is to confirm that your new 401(k) plan accepts rollovers from a 403(b). While IRS regulations permit such transfers, employers are not required to allow incoming rollovers into their plans. To verify this, you should obtain the 401(k) plan’s Summary Plan Description (SPD), which outlines the plan’s rules. You can request the SPD from your new employer’s human resources department or access it through the plan administrator’s online portal.

If the language is unclear, a direct call to the 401(k) plan administrator is the most effective way to get a definitive answer. It is also necessary to check for any potential restrictions from your old 403(b) plan. Some 403(b) accounts, particularly older ones invested in annuity contracts, may have surrender charges. These fees are penalties for withdrawing funds before a specified period and could reduce the amount you can roll over.

Required Information for the Rollover

Before initiating the transfer, you must gather the necessary information from both plans. From your 403(b) plan, you will need your account number, a recent account statement, and the contact information for the plan administrator. The primary document from the 403(b) provider is their specific rollover request or distribution form, which can be downloaded from their website or requested by phone.

This form will require details about where the funds are going. From the new 401(k) plan, you will need your new account number and the plan administrator’s contact information. You must also obtain the specific instructions for accepting a rollover. This includes the exact name that the rollover check should be made payable to, which is often the name of the financial institution for the benefit of your name and account number. Some 401(k) providers may also require a “Letter of Acceptance” to confirm their willingness to receive the funds.

The Rollover Process

The most common method is a direct rollover, or trustee-to-trustee transfer. In this process, the 403(b) institution sends the money directly to your new 401(k) plan provider. The funds are never in your possession, which avoids potential tax complications and ensures the continuity of their tax-deferred status. The 403(b) provider will issue a check payable to the 401(k) plan provider and mail it directly to them or to you to forward.

An alternative is the indirect rollover, where the 403(b) provider sends a check made out to you. You then have 60 days to deposit the funds into your new 401(k). This method is discouraged due to its strict rules and potential tax penalties. After submitting the request, you should receive confirmation that the distribution has been processed. The process takes two to four weeks, and you should monitor your new 401(k) to confirm the funds have arrived and been invested correctly.

Tax Considerations and Reporting

A properly executed direct rollover from a 403(b) to a 401(k) is a non-taxable event. You will not owe any income tax on the rolled-over amount at the time of the transaction, and the transfer does not count toward your annual contribution limit for the 401(k).

If you choose an indirect rollover, the tax implications become more complex. The 403(b) plan administrator is required by the IRS to withhold 20% of the distribution for federal income taxes. For example, if you are rolling over $50,000, you will receive a check for only $40,000. To complete a full, tax-free rollover, you must deposit the entire $50,000 into the new 401(k) within 60 days, which means you must come up with the $10,000 that was withheld from your own funds.

Failure to deposit the full amount within the 60-day window has consequences. Any portion not rolled over is considered a taxable distribution, subject to ordinary income tax. If you are under the age of 59½, you will also face a 10% early withdrawal penalty on that amount. The distribution from your 403(b) will be reported to the IRS, and you will receive a Form 1099-R from your old provider. You must report this transaction on your federal tax return to show the funds were moved to another qualified plan.

Alternatives to a 401k Rollover

If you discover that your new 401(k) plan does not accept rollovers from a 403(b), or if you decide against it, you have other options. One choice is to leave the funds in your old 403(b) plan. This can be a reasonable option if you are satisfied with the plan’s investment choices and the administrative fees are low. You will not be able to make new contributions, but the account will continue to grow tax-deferred.

Another alternative is to roll the 403(b) funds into an Individual Retirement Arrangement (IRA). A rollover to a Traditional IRA is almost always an option and follows a similar process to a 401(k) rollover. This move can provide you with a much wider range of investment choices and allows you to consolidate assets from various old retirement accounts.