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Rolling 403(b) into Roth IRA now easier

Don TaylorQuestionDear Dr. Don,
Can you roll a 403(b) into a Roth IRA?
-- Brent Bound

AnswerDear Brent,
Sure, you can roll a 403(b) from a former employer into a Roth IRA. It used to be that you would have to take the intermediate step of first rolling the funds into a traditional individual retirement account and then rolling the money into the Roth IRA. But that step is no longer required.

Here's what IRS Publication 590, "Individual Retirement Arrangements," has to say on the topic:

Rollover From Employer's Plan Into a Roth IRA
You can roll over into a Roth IRA all or part of an eligible rollover distribution you receive from your (or your deceased spouse's):

  • Employer's qualified pension, profit-sharing or stock bonus plan (including a 401(k) plan),
  • Annuity plan,
  • Tax-sheltered annuity plan (section 403(b) plan), or
  • Governmental deferred compensation plan (section 457 plan).

Any amount rolled over is subject to the same rules for converting a traditional IRA into a Roth IRA. See Converting From Any Traditional IRA Into a Roth IRA in chapter 1. Also, the rollover contribution must meet the rollover requirements that apply to the specific type of retirement plan.

A direct rollover from the employer's plan eliminates the mandatory withholding requirement. If you know where you want the funds to be held, you can work with the new custodian to affect a direct rollover.

You weren't long on particulars, so I'd suggest that you discuss this move with your tax professional before deciding to do a direct rollover into a Roth IRA. This works best, for example, if you can afford to pay the income taxes due on the rollover from a source of funds other than the monies currently held in the 403(b) account.

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