If you’ve just left a job at a public school or a non-profit, there’s a fairly decent chance you’ve had access to a retirement savings plan called a 403(b). Leaving any job gives one reason to reevaluate their finances, so it’s a good idea to look at your options as far as moving your old 403(b).
Here, we’ll discuss what a 403(b) is, who is likely to have one, and the options for moving it out of your old employer once you decide to leave your job.
A 403(b) is simply a retirement savings vehicle that is typically available to teachers and other public service workers; it’s cleverly named after its tax-protected status in the IRS uniform code. A really useful way to think about a 403(b) is as a 401(k) for those who work in public schools or other non-profit environments.
The following groups are usually eligible to open a 403(b):
In short, the 403(b) operates in a similar way to a 401(k) since it helps people save and invest for retirement. It also has certain tax advantages, depending on whether you choose the tax-deferred (pre-tax) or a Roth (after-tax) option.
This is where it can get tricky — but fear not. You’ll have a number of choices when it comes to handling your 403(b) once you’ve moved on to a new job, or simply left your previous one.
There really isn’t anything preventing you from just leaving your 403(b) as is and letting it grow into and through retirement.
Leaving your 403(b) alone is of course a very viable option, but you’ll want to be sure that the account is part of your comprehensive financial plan and that you understand the investment and tax ramifications of leaving your account with your previous employer.
This involves making a few phone calls and arranging for your 403(b) to be moved from your previous employer to a provider of your choice. Since IRAs are opened outside of your employer, this option won’t involve your new employer, even if they also offer a 403(b) plan (more on this later).
The biggest pitfall of moving your 403(b) to an IRA is not carefully weighing the tax consequences of the particular action you’re considering. For instance, if you’re thinking of moving your 403(b) to a Roth IRA, you’ll need to explicitly calculate the tax cost and be sure you have the money available to cover the upcoming tax bill. Alternatively, you won’t owe any taxes if you proceed with moving your pre-tax 403(b) to a Traditional (pre-tax) IRA.
Bottom line: If you do choose to move your 403(b), know why you’re moving it, how it benefits you, and also be sure that you understand any potential tax consequences.
This is only an option for you if you decide to move on to an employer that also offers a 403(b) plan, and your new employer would also need to allow “roll-ins” to the plan. Note that you won’t be able to combine your old 403(b) with a 401(k) plan or 457 plan at a new employer; you’ll only have the choice of merging your old 403(b) into a new 403(b) plan, if that’s even on the table in your specific circumstances.
As long as you’re fully accounting for — and thoroughly understanding — your 403(b) investments as part of your broader financial plan, you’ve won the battle. The next step is to ensure that your money sits in the best vehicle possible, which may be an IRA. This will completely depend on your personal situation.