Can I Transfer My 401k to a 403b?

A 401(k) is a retirement savings plan sponsored by an employer, typically a private sector company, allowing employees to contribute a portion of their pre-tax salary. A 403(b) is a similar retirement plan primarily offered to employees of public schools, certain non-profit organizations, and religious ministries. Both plans offer tax advantages, enabling savings to grow on a tax-deferred basis until retirement. Transferring funds between these types of retirement accounts is possible, providing a way to consolidate retirement savings.

Eligibility and Permitted Transfers

Transferring funds from a 401(k) to a 403(b) depends on conditions related to your employment status and the rules of both plans. A common scenario allowing such a transfer is when you leave an employer who sponsored the 401(k) plan. Your former employer’s plan cannot prevent you from rolling over your funds once you have separated from service.

For the receiving 403(b) plan, it must accept incoming rollovers from 401(k) accounts. Confirming acceptance with the new plan administrator is necessary, as not all 403(b) plans accept rollovers. If you are still employed by the company sponsoring the 401(k), an “in-service” rollover might be possible, but this is less common and depends on the rules of your 401(k) plan.

The tax nature of the funds plays a role in eligibility. Traditional (pre-tax) 401(k) balances can be rolled into a traditional 403(b) without immediate tax implications. Similarly, Roth 401(k) funds can be rolled into a Roth 403(b) tax-free, as both are funded with after-tax contributions. However, rolling a Roth 401(k) into a traditional 403(b), or vice versa, could trigger a taxable event.

Understanding Rollover Methods

When transferring funds from a 401(k) to a 403(b), two methods are available: a direct rollover and an indirect rollover. The chosen method impacts how the money is handled and its immediate tax implications. Understand each method’s characteristics before initiating any transfer.

A direct rollover transfers funds directly from your old 401(k) plan administrator to your new 403(b) plan administrator. You do not receive the money. The transfer can occur via a check made out directly to the new plan or electronic funds transfer. This is the preferred method because it avoids mandatory tax withholding and potential penalties, ensuring the full amount is transferred.

Conversely, an indirect rollover means the funds are first distributed to you via a check made out in your name. You then have 60 days from the date you receive the distribution to deposit the full amount into the new 403(b) account. A key aspect of an indirect rollover from a 401(k) is the mandatory 20% federal income tax withholding. This 20% is withheld by the distributing plan and sent to the IRS, even if you intend to roll over the full amount.

To avoid income tax and early withdrawal penalties on the amount, you must deposit the full distribution amount, including the 20% that was withheld, into the new 403(b) within the 60-day window. You must use other funds to make up for the 20% that was withheld. If the 60-day deadline is missed, or if the full amount is not redeposited, the portion not rolled over is considered a taxable distribution and may be subject to income tax and a 10% early withdrawal penalty if you are under age 59½.

Steps to Initiate a Rollover

Initiating a rollover from a 401(k) to a 403(b) involves coordinated actions with both your current and former retirement plan administrators. The process begins by contacting the administrator of your current 403(b) plan to confirm their acceptance of incoming rollovers from 401(k)s. This verification is important as not all plans permit such transfers.

You will contact the administrator of your former 401(k) plan to request a rollover distribution. You should specify whether you intend a direct or indirect rollover, as this determines how the funds are handled. The 401(k) plan administrator will provide the forms and instructions for your request. These forms will require details about your new 403(b) account to ensure the funds are routed correctly.

After completing the forms, you will submit them to your 401(k) plan administrator. Follow up with both the distributing 401(k) plan and the receiving 403(b) plan to monitor the progress. This coordination helps ensure a smooth transfer and minimizes delays or complications.

Post-Rollover Administration

After the rollover from your 401(k) to your 403(b) is complete, follow-up is necessary to ensure record-keeping and tax compliance. You should expect to receive confirmation statements from both the 401(k) and 403(b) providers. These statements serve as proof that the funds have been transferred and received.

For tax purposes, the distributing 401(k) plan administrator will issue Form 1099-R, “Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.” This form reports the gross distribution amount and indicates whether it was a direct rollover with code ‘G’, or an indirect rollover. If it was a direct rollover, the taxable amount box on Form 1099-R should be blank or zero, indicating no immediate tax liability.

The receiving 403(b) plan administrator will issue Form 5498, “IRA Contribution Information,” confirming acceptance of the rollover contribution. While Form 5498 is used for IRA contributions, similar documentation or statements confirm receipt of funds into the 403(b). Retain copies of these forms and statements for your tax records. You must report the rollover on your federal tax return, even if it is not a taxable event, by including the information from Form 1099-R.