Can I Roll Over a 401(k) to a 403(b)?

When changing employers, individuals often need to manage retirement savings from previous jobs. A common question is whether funds from a 401(k) can be transferred into a 403(b) plan, typically offered by educational institutions or non-profit organizations. It is generally possible to roll over funds from a 401(k) to a 403(b), provided certain conditions are met and proper procedures are followed. Understanding this process helps ensure a smooth transition of retirement assets without unintended tax consequences.

Eligibility for a 401(k) to 403(b) Rollover

Transferring funds from a 401(k) to a 403(b) requires meeting specific eligibility criteria for both accounts. Generally, funds from a 401(k) are eligible for rollover after you separate from service with the employer sponsoring the plan.

Some 401(k) plans may allow in-service distributions, permitting a rollover even if you are still employed. However, this depends on the specific provisions of your 401(k) plan document. Confirm this with your former 401(k) plan administrator.

The receiving 403(b) plan must be established and permit incoming rollovers from other qualified retirement plans. Not all 403(b) plans accept such transfers. Before initiating any transfer, verify with your current 403(b) plan administrator or human resources department that their plan accepts rollovers from 401(k) accounts.

For the rollover to be tax-free, both the originating 401(k) and receiving 403(b) plans must be “eligible retirement plans” under the Internal Revenue Code. This ensures the transfer does not trigger an immediate taxable event. Confirming the eligible status of both plans with their administrators is a necessary step.

Understanding Rollover Methods

Two primary methods exist for moving retirement funds: a direct rollover and an indirect rollover. Each method has distinct characteristics and tax implications.

A direct rollover involves the transfer of funds directly from the 401(k) plan administrator to the 403(b) plan administrator. The participant never takes possession of the funds. This method is often preferred because no federal income tax withholding occurs, ensuring the full amount is moved.

An indirect rollover, also known as a 60-day rollover, means the distribution check is issued directly to the participant. Federal law mandates a 20% federal income tax withholding from the distributed amount. This withholding applies even if the participant intends to roll over the full sum.

The 60-day deadline is important for an indirect rollover. You must deposit the received funds into the new 403(b) account within 60 calendar days from the date you receive the distribution. Failure to meet this deadline can result in the entire distribution being considered taxable income for the year. If you are under age 59½, it may also incur a 10% early withdrawal penalty.

To roll over the full original amount in an indirect rollover, you must replace the 20% that was withheld from other personal funds. If this 20% is not replaced and rolled over, that portion will be considered a taxable distribution.

Completing a Direct Rollover

To complete a direct rollover from a 401(k) to a 403(b), first contact your former 401(k) plan administrator. They will provide instructions and forms to initiate the transfer.

Simultaneously, contact your new 403(b) plan administrator. They will provide instructions and forms for accepting the incoming funds. Obtain the correct receiving account details, including the plan’s name, account number, and the trustee’s or custodian’s information.

You will typically complete a rollover request form from your 401(k) plan, providing details about the receiving 403(b) plan. The 403(b) plan administrator may also require a rollover acceptance form.

Once forms are submitted, the 401(k) plan administrator will directly transfer the funds to the 403(b) plan administrator. This transfer is usually electronic or via a check made payable to the new plan’s custodian. The process generally takes a few business days to a few weeks.

After a reasonable period, follow up with your new 403(b) plan administrator to confirm the funds have been received and deposited into your account. This verifies the rollover is complete.

Completing an Indirect Rollover

An indirect rollover requires more active participation from the individual and carries specific deadlines and tax implications. The process begins by requesting a distribution from your former 401(k) plan administrator, specifying it is for an indirect rollover. The plan will then issue a check payable to you.

The distribution check will be for 80% of the total amount due to mandatory 20% federal income tax withholding required by the Internal Revenue Service (IRS) for eligible rollover distributions. This withholding is a prepayment of taxes and does not mean the rollover is complete.

The most important step in an indirect rollover is depositing the funds into your new 403(b) account within 60 days from the date you received the distribution. If you fail to deposit the funds within this 60-day period, the entire distribution, including the 20% withheld, will be considered taxable income for the year. Additionally, if you are under age 59½, the distribution may also be subject to a 10% early withdrawal penalty under IRS Code Section 72.

To roll over the full original amount of your 401(k) distribution, you must contribute the 20% that was withheld from other personal funds to your new 403(b) plan within that same 60-day timeframe. For example, if you received $8,000 from a $10,000 distribution, you would need to deposit $10,000 into your 403(b) account, using $2,000 from personal savings to make up the difference. If you only deposit the $8,000 received, the remaining $2,000 that was withheld will be treated as a taxable distribution.

For tax reporting purposes, your former 401(k) provider will issue Form 1099-R, reporting the distribution. Your new 403(b) provider will later issue Form 5498, reporting the contribution to the retirement plan. It is important to retain these forms for accurate tax filing.