Can You Roll a 401k Into a 403b?

Companies cannot offer both a 401k and 403b plan to its employees, because 401k plans are only offered by for-profit employers, while 403b plans can only be offered by non-profits. However, if you change employers from a for-profit company to a non-profit, you might want to take your retirement savings account with you. The Internal Revenue Service permits moving money from a 401k plan into a 403b plan.

Options

You can move money from your 401k plan to your 403b plan either through a rollover or through a direct transfer. With a rollover, the money is paid to you first, and then you have up to 60 days to redeposit the money into the 403b plan. With a direct transfer, the money moves automatically from your 401k plan to your 403b plan. The direct transfer is the simplest option and should be used unless you need to use the money for up to 60 days.

Tax Reporting

Moving your money from a 401k plan to a 403b plan does not generate any additional tax liability, regardless of how you move it. With a direct transfer, you do not need to report anything on your taxes. However, if you move the money through a rollover, you do need to report it on your income taxes. Using either form 1040 or 1040A, you must report the amount of the rollover as a nontaxable distribution and write "rollover" next to it to show that you rolled the money over.

Benefits

By moving the money from an old 401k plan into a 403b plan, you can consolidate your retirement funds into one place, which makes it easier to track. In addition, since both plans are tax-deferred, you maintain the tax-sheltered status of your plan. Your 401k plan might also increase the maintenance fees on your account since you are no longer working at the company.

Drawbacks

If you perform a rollover, you must be sure to get the funds into your 403b plan within 60 days to avoid penalties and taxes. Also, because of IRS rules, 403b plans are limited to investing in only mutual funds and annuities, which may limit your investment options. However, if you have a particular annuity or investment fund you want to move your money to that is offered by your 403b plan provider, this drawback is of little significance.

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