Funds must be deposited into an IRA with a signed contribution form from the custodian or trustee.
However, it is advisable to communicate with your IRA custodian to familiarize yourself with their specific policies and procedures to avoid unnecessary delays.
Additionally, it is essential to consult your 403(b) plan administrator or carrier to ensure the required paperwork is completed. This may involve completing a distribution request form to facilitate asset distribution. The administrator might also request an acceptance letter from your IRA custodian confirming that the assets will be deposited into an eligible retirement plan.
Ensuring the transaction is conducted as a “direct rollover.” Any distributed funds must be made payable to your IRA custodian and sent directly to them.
Understanding How a 403(b) Functions
A 403(b) plan serves as a retirement account for employees of public schools and tax-exempt organizations, similar to a 401(k) plan. In 2022, the 403(b) contribution limit is $20,500; it will increase to $22,500 in 2023. Individuals aged 50 and above have a catch-up contribution limit of $6,500 in 2022 and $7,500 in 2023.
Like a 401(k), a 403(b) plan may offer a Roth option, and individuals can contribute to both plans, although this is uncommon.
Notably, 403(b) plans may also provide matching contributions and often have faster vesting schedules than 401(k) plans. In certain instances, participants in 403(b) plans who have worked for nonprofit or government agencies for more than 15 years may be eligible for additional catch-up contributions.
For withdrawals from a 403(b) plan, funds taken before age 59½ are typically subject to a 10% penalty. However, this penalty can be avoided if an individual leaves their employer at 55 or older.
Drawbacks of 403(b) Accounts
One of the primary reasons individuals consider rolling over their 403(b) balance into an IRA is to access a broader range of investment choices.
Certain popular investments, such as individual stocks and real estate investment trusts (REITs), are prohibited within 403(b) accounts. However, mutual funds and variable annuity contracts are allowed. In contrast, mutual fund companies’ 401(k) plans offer a broader range of investment options.
While rolling over funds into an IRA is a viable option, it is also essential to consider other alternatives. These include rolling over the funds into another retirement plan, cashing out the 403(b) plan, or retaining the funds within the 403(b) plan. The decision depends on factors such as employment circumstances, investment experience, the costs associated with various investment choices, and investment goals.
It is advisable to conduct thorough research on the costs associated with investing. The internal expense ratio of funds can vary significantly. Keeping the funds in the 403(b) plan may be suitable if you are between jobs and prefer not to manage your investments actively. Generally, you can maintain the funds in your existing account if your balance exceeds $5,000.
Suppose you want to develop banking, investment management, or other finance-related skills. In that case, you can explore numerous online certificate programs offered by leading universities worldwide in partnership with Emeritus.
These programs cover various topics, from core fundamentals to the latest research studies, and are taught by industry experts. By enrolling in these programs, you can acquire valuable future-ready skills in banking, investment management, and finance.
…