How to Roll Over a Roth 403(b) to a Roth IRA

A Roth 403(b) to Roth IRA rollover involves moving retirement funds from an employer-sponsored plan to a personal retirement account. This is a common strategy for individuals changing jobs, retiring, or looking to consolidate retirement assets into a more manageable account. The process allows for the continued tax-advantaged growth of savings by moving post-tax funds from one retirement account to another.

Key Considerations for the Rollover

A primary factor in this rollover is its tax treatment. Because a Roth 403(b) is funded with after-tax dollars, moving those funds into a Roth IRA is a non-taxable event. Some 403(b) plans may contain both Roth and traditional pre-tax funds. In such cases, only the Roth portion can be moved into a Roth IRA without triggering a tax liability, as transferring the pre-tax portion is a taxable conversion.

Understanding the Roth IRA 5-year rule is important before proceeding, as it determines if withdrawals of earnings are tax-free. The countdown begins on January 1st of the tax year of your first contribution to any Roth IRA. Once this five-year period is met and you are over age 59½, earnings can be withdrawn tax-free. While rolled-over contributions can be withdrawn from the new Roth IRA at any time, the earnings portion of your rollover is subject to its own five-year waiting period before it can be withdrawn tax-free.

Preparing for the Rollover

Before initiating the transfer, gather specific information for both the Roth 403(b) and the Roth IRA. You will need the account numbers, the names of the financial institutions holding each account, and their contact details. If you do not already have a Roth IRA, you must open one before proceeding with the rollover. Selecting a provider that aligns with your investment goals and fee preferences is a practical first step.

The rollover process is initiated through your current Roth 403(b) provider. You will need to request and complete their specific rollover or distribution paperwork. This form requires your personal information, your Roth 403(b) account number, and the account details for the receiving Roth IRA.

The Rollover Process

There are two methods for executing the rollover: a direct rollover or an indirect rollover. The direct rollover is the most common approach. In this method, the administrator of your Roth 403(b) plan sends the funds directly to the financial institution that holds your Roth IRA. This transfer can be done electronically or via a check made payable to the receiving institution, ensuring you never take personal possession of the money. This method avoids any potential for tax withholding or missed deadlines.

The alternative is an indirect rollover, which comes with significant risks. With this method, the 403(b) provider sends a check for the account balance directly to you. You have a strict 60-day window from the date you receive the funds to deposit the entire amount into your Roth IRA. If you miss this deadline, the distribution may be treated as taxable income and could be subject to a 10% early withdrawal penalty if you are under age 59½.

To begin the transfer, you must submit the completed rollover request form to your Roth 403(b) provider through their specified channel, such as an online portal, mail, or fax. After submission, you should receive a confirmation from the provider. The transfer of funds takes several business days, after which you should verify that the assets have been successfully deposited into your Roth IRA.

Post-Rollover Tax Reporting

Even though a direct Roth 403(b) to Roth IRA rollover is a non-taxable event, it must be reported to the IRS. Following the transaction, you will receive two tax documents. Your former Roth 403(b) plan administrator will send you Form 1099-R. For a direct rollover from a designated Roth account to a Roth IRA, Box 7 of this form should contain the code “H,” which signals a non-taxable transfer.

The financial institution that manages your new Roth IRA will issue Form 5498, IRA Contribution Information. This form reports all contributions made to your IRA for the year, including the incoming rollover amount. You will receive this form by May 31 of the year following the transaction.

When you file your federal income tax return, you must report the rollover on Form 1040. You will report the total amount of the distribution on the line for IRA distributions and the taxable amount, which should be $0 for a proper Roth-to-Roth rollover, on the corresponding line.