How to Transfer a Tax Sheltered Annuity 403(b) to a Traditional IRA

Unleash your investing smarts by moving your 403(b) to a traditional IRA.
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If you've put in your time for a non-profit and set aside money in your employer's 403(b) plan, you might be tired of high-fee annuities that don't match what someone of your investing savvy could make in the open market. However, you don't want to miss the tax-sheltered growth of a 403(b). If you're eligible, you can have the best of both worlds by transferring the money to a traditional IRA.

When Transfers are Permitted

Transfers from a 403(b) plan to a traditional IRA are permitted only in certain circumstances, such as when you turn 59 1/2. If you don't qualify on that front, you can also do a transfer if you have left the company or have suffered a permanent disability. If you don't meet one of these criteria, you aren't eligible to move money from a 403(b) plan to a traditional IRA, or any other qualified plan for that matter.

Methods of Moving the Money

Assuming you're eligible, the easiest way to move the money from a 403(b) to a traditional IRA is through a transfer, also known as a direct rollover. With a direct rollover, you tell your 403(b) plan administrator where you want the money moved and the money goes directly into your traditional IRA. Alternatively, you can take a distribution from your 403(b) plan and put it into your traditional IRA within 60 days. However, money will be withheld from the distribution and the IRS is not very forgiving if you accidentally miss the 60-day deadline.

Telling Uncle Sam

Even though moving money from a 403(b) plan to a traditional IRA doesn't result in any addition tax liability, Uncle Sam still might want to hear about it. If you do a transfer, you don't need to report anything. However, if you do a rollover, you have to report it as a nontaxable rollover on your tax return. When you do your taxes, remember to include any federal income taxes withheld from the rollover. Adding it to your other income taxes withheld will increase your tax refund.

Picking Your Investments

By moving money from a 403(b) plan to a traditional IRA, you'll have more choices on where it can go. Funds in 403(b) plans can only be invested in annuities and mutual funds. IRAs open a whole new world of investments that includes individual stocks, bonds, certain precious metals, and real estate. You can also have your traditional IRA managed by any financial institution, so you can shop around to find one that matches your investment strategy and charges less in fees.

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