Should I Roll Over 401(k) to 403(b)? – Avoid This Mistake + FAQs

Changing jobs often means deciding what to do with your old 401(k).

If your new employer offers a 403(b) plan, you might wonder if you should roll over your 401(k) into the 403(b).

This decision isn’t one-size-fits-all. It depends on your profession, the specifics of each plan, tax considerations, and your future goals.

Understanding 401(k) and 403(b) Retirement Plans

A 401(k) and a 403(b) are both employer-sponsored retirement savings plans, but they serve different types of employers. A 401(k) is typically offered by private sector and corporate employers.

In contrast, a 403(b) (sometimes called a Tax-Sheltered Annuity) is designed for public sector and nonprofit organizations. This includes government agencies, public schools, colleges, charities, hospitals, and churches.

In practice, 401(k) and 403(b) plans share many similarities. Both allow employees to contribute part of their salary into tax-advantaged investments.

Contributions are usually made pre-tax (reducing current taxable income), and many plans also offer a Roth option for after-tax contributions.

The annual contribution limits are the same for both (for example, $22,500 per year, with an extra catch-up $7,500 if you’re 50 or older). Both types of plans let your investments grow tax-deferred until retirement.

They also have similar early withdrawal rules—generally, withdrawals before age 59½ incur a 10% penalty (with certain exceptions).

Key differences between 401(k) and 403(b) plans:

Despite these differences, the day-to-day experience for an employee investing in a 401(k) vs a 403(b) is quite similar. You choose investment options from the plan’s menu (usually mutual funds or annuities for 403(b)s and mutual funds for 401(k)s), contributions are automatically deducted from your paycheck, and your money grows tax-deferred. The key distinction is really the type of employer and a few unique rules.

Knowing these basics sets the stage for deciding on a rollover. Next, we’ll look at what it means to roll over a 401(k) to a 403(b) and what factors to consider.

Rollover Basics: Moving a 401(k) to a 403(b)

A “rollover” means transferring your retirement funds from one account to another without taking a taxable distribution.

In this case, rolling over a 401(k) to a 403(b) usually happens when you leave a job at a company and start working for a nonprofit or public employer that offers a 403(b). Instead of leaving your money behind in the old 401(k) or cashing it out (which would trigger taxes and penalties), you transfer it into your new employer’s 403(b) plan.

To roll over your 401(k) into a 403(b), you’ll follow a process called a direct rollover or trustee-to-trustee transfer. In a direct rollover, the funds go straight from your old plan to the new plan, so you never touch the money personally.

This preserves the tax-deferred status. If you withdraw the money first (an indirect rollover), 20% will be withheld for taxes and you have 60 days to deposit the full amount into the new 403(b) to avoid taxes – a risky and generally unnecessary step.

How to execute a direct 401(k)-to-403(b) rollover:

1. Check the new plan’s policy: Confirm with your new 403(b) plan administrator that they accept rollovers from outside qualified plans. Most 403(b) plans do, but it’s important to verify any paperwork or requirements.
2. Initiate the rollover with your old plan: Contact your former 401(k) provider and request a direct rollover into your new 403(b). You’ll usually fill out a form indicating the new plan’s information (account number, plan administrator address).
3. Transfer of funds: Your 401(k) provider will either send a check directly to your new 403(b) plan or send it to you made out to the new account (not to you personally). If it’s sent to you, be sure to forward it to the 403(b) provider promptly. Do not deposit it in your bank account.
4. Confirmation: Once the rollover is complete, confirm that your funds have arrived and are invested in the 403(b) plan as you instructed. Keep records of the rollover in case any questions arise at tax time.

When done correctly, a rollover is not a taxable event. You will not owe income tax or penalties for moving your 401(k) into a 403(b). The money continues to grow tax-deferred. Note that if your old 401(k) had both pre-tax and Roth portions, those must be rolled into the corresponding new accounts (traditional 403(b) for the pre-tax money and Roth 403(b) for the Roth money) to avoid tax issues.

Now that we know how a rollover works, the big question remains: Should you roll over your 401(k) to your new 403(b) or not? The answer depends on several key considerations, which we will explore next.

Key Considerations Before You Roll Over

Deciding on a rollover means examining several factors in detail. These include taxes, investment options, fees, withdrawal rules, plan restrictions, and legal protections. We’ll break down each:

Tax Implications and IRS Rules

From a tax perspective, a direct rollover of a 401(k) to a 403(b) is neutral. You do not owe taxes on the transfer, and your money remains in a tax-deferred account. This means you won’t pay income tax until you eventually withdraw funds in retirement.

It’s critical to do a direct rollover; if you accidentally take possession of the money (an indirect rollover) and don’t deposit it into another qualified plan within 60 days, the IRS will treat it as a withdrawal – charging you income tax and a 10% early withdrawal penalty if you’re under 59½.

Make sure to maintain the tax character of your funds during the rollover. For example, if your 401(k) has a Roth 401(k) portion, roll that into the Roth side of the new 403(b) (or into a Roth IRA) to avoid any taxation.

Pre-tax dollars from the 401(k) should go into the traditional 403(b). Most providers will handle this automatically if you fill out the paperwork correctly.

One special tax consideration involves company stock. If your 401(k) holds highly appreciated employer stock, you might be eligible for a tax break called Net Unrealized Appreciation (NUA) if you transfer that stock to a taxable brokerage account instead of rolling it over.

Utilizing NUA can lower taxes on that stock’s growth by converting it to capital gains tax. However, rolling company stock into a 403(b) would forfeit this NUA opportunity. If you have employer stock in your 401(k), consult a financial advisor about the best approach before rolling it over.

In summary, for most people a 401(k)-to-403(b) rollover is tax-free and straightforward. As long as it’s done directly plan-to-plan, you preserve your tax advantages. You’ll continue to enjoy tax-deferred (or Roth) growth, and no taxes will hit until you take distributions down the road.

Investment Options and Performance

One major factor is the range and quality of investments offered in your old 401(k) versus your new 403(b). Every employer plan has a menu of investment options (typically mutual funds, and sometimes annuities in 403(b)s).

If your old 401(k) had excellent, low-cost investment choices and your new 403(b) offers only a limited selection of high-fee funds or annuity products, you might hesitate to roll your money into the new plan.

On the other hand, if the 403(b) plan has equal or better investment options (for example, index funds with low expense ratios or unique funds you want), consolidating your savings there could make sense.

Consider how comfortable you are with the investment lineup in each plan. For instance, some large corporate 401(k) plans negotiate very low fees on institutional-class mutual funds, which can be a big advantage.

Some 403(b) plans, especially in small nonprofits or school districts, might have fewer choices or products with higher fees (which can drag down returns).

If your 401(k) had a stable value fund or other unique investment yielding good returns, check if the 403(b) has something comparable. Likewise, if the 403(b) offers a reputable vendor like TIAA or Fidelity with a broad array of funds, it may be comparable to or better than your old plan.

Another aspect is convenience in managing your portfolio. Having all your retirement money in one account can simplify tracking your asset allocation and performance.

It’s easier to rebalance and adjust investments when everything is in one place. If you leave your 401(k) separate, you’ll have to manage two sets of investments.

However, remember that rolling into an IRA (instead of the 403(b)) could give you even more investment options beyond either plan – such as individual stocks, ETFs, or specialized funds.

In short, evaluate which option gives you the investments you need at the lowest cost, since better investment options can mean more growth over time.

Fees and Administrative Costs

All retirement plans come with fees, and over time those costs can significantly eat into your savings.

When considering a rollover, compare the fee structures of your old 401(k) and your new 403(b). Fees come in a few forms: the expense ratios of the mutual funds or annuities you invest in, and any administrative or record-keeping fees charged by the plan provider.

Start with investment fees. Does your 401(k) offer ultra-low-cost index funds (with expense ratios near 0.05% or 0.1%), while the 403(b) only has actively managed funds charging 1%? Or vice versa?

That difference in fund fees, compounded over years, can cost or save you tens of thousands of dollars. Next, look at plan administrative fees. Some plans charge each participant an annual fee or a percentage of assets for plan administration.

It’s possible your old employer was covering some of these costs while you were an active employee, but as a departed employee you might now be charged directly. For example, some 401(k)s charge former employees a quarterly maintenance fee.

Similarly, certain 403(b) vendors (especially insurance-based plans) might have annual contract fees or even surrender charges if you move money out within a certain time frame.

If your old 401(k) is low-cost and your new 403(b) is comparatively expensive, you might lean toward leaving the money in the 401(k) (or rolling it to an IRA) instead of into the 403(b).

On the other hand, if the 403(b) plan is known for low fees (many large hospital or university 403(b)s have competitively priced funds), consolidating there could save money.

Sometimes consolidating accounts also eliminates redundant fees – for instance, you avoid paying two separate account fees to two providers by having just one account. Always review the fee disclosure documents for each plan and consider the long-term impact. A seemingly small difference, like 0.5% in extra fees, can substantially reduce your retirement balance over decades.

Access to Funds (Withdrawals and Loans)

How and when you can access your money is another consideration. While ideally retirement money stays untouched until retirement, life can throw curveballs or early retirement opportunities might beckon. There are two main angles here: early withdrawal rules and loan availability.

Withdrawal rules: Both 401(k) and 403(b) plans generally penalize withdrawals before age 59½ with a 10% early withdrawal penalty (on top of income tax). However, there’s a key exception known as the “Rule of 55.” If you leave your job (separate from service) in or after the year you turn 55, you can withdraw from that employer’s 401(k) or 403(b) without the 10% penalty.

This matters if you are in your mid-to-late 50s and considering retiring or reducing work. For example, if you left your corporate job at age 55 and want to start withdrawals, you could tap the 401(k) penalty-free.

If you roll that 401(k) into a new 403(b) and continue working, you generally cannot withdraw those funds until you leave the new job (or reach 59½ for an in-service withdrawal if the plan allows). In that case, leaving the money in the old 401(k) might preserve your ability to use it between ages 55 and 59½.

On the flip side, if you are nowhere near age 55 or 59½, this may be less of a factor (any withdrawal would be penalized regardless, unless you use special exceptions like hardship or substantially equal payments).

Loan availability: One advantage of employer plans over IRAs is the ability to borrow from your account balance. 401(k) and 403(b) plans often allow loans (typically up to 50% of the balance, max $50,000) that you repay through payroll deductions.

If you think you might need to borrow money for an emergency, home purchase, or other reason, keeping your funds in a plan where loans are available is important. If you roll your 401(k) into the new 403(b), and that 403(b) permits loans to active employees, you’ll be able to take a loan on the combined balance down the road.

But if you leave the money in the old 401(k), you usually cannot take new loans (once you leave an employer, loan privileges end, and any existing loan would need to be repaid or will default).

And if you roll to an IRA, loans are not allowed at all from IRAs. So for those who value flexibility to access money via a loan, moving the 401(k) into a new 403(b) may be better than keeping it in an IRA or leaving it behind.

In summary, consider your need (or potential need) for accessing funds before retirement. If you plan to retire early at 55-60, keeping the money in a plan that you’ve separated from at age 55 can grant penalty-free withdrawals during that period.

If you anticipate possibly borrowing from your retirement, a rollover to the new employer’s plan keeps that door open, whereas an IRA would shut it. Always remember that withdrawals and loans can impact your long-term retirement goals, so use them sparingly.

Employer Plan Restrictions and Flexibility

Every employer’s retirement plan has its own rules, so you should be aware of any restrictions that could affect your rollover decision. First, confirm that your new 403(b) plan will accept a rollover from your 401(k).

Most plans do, but occasionally a plan might not accept outside rollovers or may only accept them after you’ve participated for a certain period. Check with your HR or plan administrator about any waiting period for roll-ins.

If you have an outstanding loan on your 401(k), know that it cannot be transferred to the new plan as a loan. You’ll typically have to repay the loan in full when you leave the job, or else the remaining balance will be treated as a taxable distribution.

That portion would then incur taxes (and a penalty if you’re under 59½). This can be an unwelcome surprise. So, if you have a 401(k) loan, factor that in: you might delay the rollover until the loan is paid off, or prepare to cover the taxes on the loan amount if it defaults.

Consider also how much of your 401(k) balance is eligible to roll. After leaving your job, you can usually roll over the entire vested balance. Partial rollovers are also allowed in many cases, meaning you could roll over some of the money and leave the rest (though many people prefer to move it all for simplicity).

If your 401(k) balance is very low (generally under $5,000), your former employer might even cash it out or roll it into an IRA automatically after some time, due to plan rules. To avoid any involuntary cash-out, initiating a timely rollover to your 403(b) or an IRA is wise.

Another aspect of flexibility is ongoing contributions. You can’t contribute new money to an old 401(k) once you’ve left that employer. If you roll it into your 403(b), all your current and future contributions at the new job will be in one account, which can be convenient.

Also, ensure the rollover doesn’t impact your eligibility for any employer matching in the new plan (usually it doesn’t—rollover funds don’t get a match, only new contributions do).

Finally, pay attention to the types of money in your accounts. If your 401(k) had Roth contributions or after-tax contributions, the new 403(b) must have a Roth option to accept the Roth portion.

If not, you might need to send the Roth part to a Roth IRA. All these technical details underscore the importance of coordinating with both plan administrators so the rollover goes smoothly. But as long as both plans’ rules are accommodated, a rollover is typically straightforward.

Account Protection and Other Considerations

Beyond the basics, there are a few additional factors that an expert eye will consider:

Creditor protection: Money in a 401(k) or 403(b) is generally well-protected from creditors and lawsuits under federal law (ERISA) in ways that IRAs sometimes are not. If asset protection is a concern for you (for example, if you’re in a high-liability profession or have significant assets), keeping your retirement savings in an employer plan can provide extra peace of mind. Rolling over into your new 403(b) keeps those dollars in an ERISA-protected environment (assuming your 403(b) is an ERISA plan – most are, except government or church plans).

By contrast, if you rolled into an IRA, in some states creditors could potentially reach those funds outside of bankruptcy. This consideration may not matter to everyone, but it’s important for some.

Backdoor Roth IRA considerations: High-income individuals who utilize the “backdoor Roth” strategy (contributing to a traditional IRA and then converting to a Roth IRA) will want to avoid having a large traditional IRA balance, due to the pro-rata tax rules.

If you roll your 401(k) into a traditional IRA, you could inadvertently sabotage your backdoor Roth conversions by owing taxes on the pro-rated pretax amount. Moving your 401(k) into a 403(b) instead keeps those funds out of the calculation, preserving your ability to do backdoor Roth conversions cleanly.

In short, rolling into a new 403(b) (or keeping money in any employer plan) is preferable over an IRA if you plan to use that Roth conversion strategy each year.

Required Minimum Distributions (RMDs): Another often-overlooked factor is RMDs at older ages. Currently, at age 73 (moving to 75 in coming years for younger folks, under recent law changes), you’re required to start withdrawing a portion of your retirement funds each year, paying taxes on those withdrawals.

If you continue working, the IRS allows you to delay RMDs from your current employer’s plan until you actually retire. This is called the “still working exemption.” If you rolled your old 401(k) into your new 403(b), and you keep working past 73, you wouldn’t need to take RMDs from that money until you stop work.

In contrast, if you left the money in your old 401(k) or moved it to an IRA, you’d have to start RMDs at 73 regardless of your employment status. For someone who plans to work into their mid-70s, consolidating funds in the current employer’s plan can simplify RMD management and maximize tax deferral.

Other special situations: Certain professions have unique rules. For example, clergy members with church-sponsored 403(b) plans can exclude some of their distributions as a housing allowance for tax purposes – a benefit that would be lost if funds are rolled into an IRA.

We will discuss these specific cases by profession next. Additionally, if you hold after-tax contributions in your 401(k), you might have options like splitting them to a Roth IRA during rollover to optimize taxes. These nuanced cases warrant careful planning, possibly with a financial advisor, to choose the best rollover approach.

By weighing all of the factors above – taxes, investment options, fees, access, restrictions, protections, and special rules – you can make an informed decision. Next, let’s consider how these general points apply to different professional scenarios, since your type of employment can influence the decision to roll over or not.

Profession-Specific Considerations for 401(k) to 403(b) Rollovers

Different professions often come with different retirement plan environments. Here are tailored insights for various types of workers considering a 401(k) to 403(b) rollover:

Corporate Employees (Private Sector)

Corporate employees typically have a 401(k) plan while working in the private sector. If you transition from a corporate job to a nonprofit or public-sector job (where a 403(b) is offered), you’ll face the 401(k) to 403(b) rollover decision. Corporate 401(k) plans, especially at large companies, often feature well-managed funds and low fees due to economies of scale. When moving to a nonprofit, compare your old 401(k) and new 403(b) carefully.

For example, if your corporate 401(k) was with a provider like Fidelity or Vanguard with many index funds, but your new 403(b) is a small plan with an insurance company offering higher-cost annuities, you might choose to leave the 401(k) as is (or roll it to an IRA) rather than into the 403(b).

Conversely, if your new employer’s 403(b) is solid and your old 401(k) has no special advantages, rolling it over can simplify your finances.

Corporate employees should also remember unique issues like company stock in the 401(k) (consider the NUA tax break before rolling) and the fact that once you leave the company, you can’t take loans or new contributions in that old plan.

Often, corporate workers roll old 401(k)s into whichever new employer plan they go to next, but it’s wise to evaluate the specifics rather than assume one is always better.

Government Workers (Public Sector)

Government workers may encounter slightly different retirement plan landscapes. Many government and public employees participate in deferred compensation plans like a 457(b) or have pensions, but some (especially in education or certain agencies) also have access to 403(b) plans.

If you move from a private company to a government job, first identify what retirement plan is offered: is it a 403(b), a 457(b), or a Thrift Savings Plan (for federal employees)? If your new role provides a 403(b) (common for public school employees and some public hospitals or universities), the considerations are similar to any rollover: compare investment options and fees.

Government 403(b) plans sometimes have excellent low-cost choices (for instance, state university plans might offer institutional funds or TIAA options). In those cases, rolling your 401(k) into the 403(b) could be very beneficial.

On the other hand, if your new plan is a 457(b) deferred comp plan, note that while you can roll a 401(k) into a 457, you might lose the unique no-penalty withdrawal feature on those rolled funds.

Some government workers opt to keep their 401(k) separate or roll it to an IRA, especially if they have a strong pension and don’t need to consolidate.

As a public sector employee, also consider job stability and mobility: if you might move again or retire early (government jobs often have earlier retirement ages with pensions), the rule of 55 or 457’s no-penalty rule could guide whether you keep funds in separate buckets. In summary, government workers should align their rollover decision with the type of plan they now have and the benefits that come with it.

Nonprofit Employees

Nonprofit employees (such as those working for charities, foundations, cultural institutions, or private universities) typically have 403(b) plans. If you’re joining the nonprofit sector after a corporate stint, you’ll likely consider rolling over your corporate 401(k) into your new nonprofit 403(b).

Nonprofits can range from small organizations with basic retirement plans to large institutions with very robust 403(b) offerings. Evaluate the professionalism of the new plan: Large nonprofits often partner with big providers (like TIAA, Vanguard, or Fidelity) offering diversified, low-cost portfolios – a good sign for rolling in your assets.

Small nonprofits might offer a 403(b) through an insurance company or a third-party administrator with limited funds and possibly higher fees. In those cases, you might decide to keep your 401(k) funds in an IRA for more control or leave them in the old 401(k) if it was superior.

Another factor is how long you expect to stay in the nonprofit sector. Nonprofit careers sometimes involve moving between organizations, which can result in multiple 403(b) accounts.

Consolidating each time into the current 403(b) can make tracking easier, but only if each new plan is solid.

Additionally, if your nonprofit employer doesn’t offer a match or contributes to a separate pension, rolling your 401(k) into the 403(b) will solely be for your convenience – there’s no extra money to be gained, so weigh convenience versus investment quality.

Nonprofit employees should also be aware of the 15-year service catch-up rule: if you stay with the same nonprofit for a long time, having all your money in that 403(b) might allow you to maximize that catch-up if you qualify, though that concerns contributions more than rollovers.

Educators (Teachers and Professors)

Educators often have unique retirement setups. Public school teachers and college professors commonly have 403(b) plans and may also have access to 457(b) plans, plus pension systems.

If you’re a teacher moving from a private industry job (with a 401(k)) into education, you might want to roll your 401(k) into your new 403(b) for simplicity – but be cautious.

K-12 school 403(b) plans in particular have a reputation for being filled with high-cost annuity products due to insurance vendors operating in that space.

If your new 403(b) vendor options charge high fees (or if you have limited choices), you might keep your 401(k) money in an IRA or the old 401(k) instead of subjecting it to higher costs.

On the other hand, many higher education institutions have excellent 403(b) plans (like those with TIAA or low-cost mutual funds) where rolling in your assets could be a smart move.

As an educator, consider your pension too: you might not need to tap your 403(b) until much later if you have a pension income, so you could afford to keep the account wherever it grows best (be it the 403(b) or elsewhere).

If you’ve taught at multiple schools, you may already have multiple 403(b) accounts; consolidating them (either into your current 403(b) or into a single IRA) can simplify your financial life.

Also, recall the age-55 rule: if you retire from teaching at 55 or older, money in that school district’s 403(b) can be withdrawn without penalty, which could be a reason to roll other funds into it before retirement. Educators should weigh the benefits of simplification and any special withdrawal privileges against the cost structure of their retirement plan options.

Healthcare Workers

Healthcare workers can be found in both the for-profit and nonprofit world. For instance, a nurse or doctor might move from a private practice or corporation (with a 401(k)) to a nonprofit hospital or clinic (with a 403(b)), or vice versa.

When moving into a nonprofit healthcare system that offers a 403(b), examine how the plan is structured. Large hospital systems often have well-run 403(b) plans with a wide range of investments (some even offer 403(b) and 401(a) combinations for employee and employer contributions).

If your new hospital’s 403(b) has good options, rolling your old 401(k) into it could merge your retirement savings conveniently. Healthcare workers often value this consolidation because the industry can involve changing employers (e.g., traveling nurses, or physicians joining new hospital groups).

If you keep multiple accounts, it can be hard to track while you’re focused on patient care. However, be mindful if the new 403(b) has any drawbacks – for example, some smaller hospitals might have annuity-based 403(b)s with higher fees. Also, check if you’re eligible for other plans: some nonprofit healthcare employers also offer a 457(b) for additional deferrals, which has its own rules.

If you have access to a 457(b) and plan to retire early, you might keep some funds separate to take advantage of the no-penalty withdrawals of the 457. In summary, healthcare professionals should treat the rollover question much like corporate vs nonprofit employees do: weigh the quality of the new 403(b) against the old 401(k).

Often the new environment (hospital or clinic) will encourage consolidating into their plan for ease, but the financial merits should dictate the final choice.

Clergy Members

Clergy and ministers have very specialized retirement considerations. Churches and religious organizations can offer 403(b) plans (sometimes called 403(b)(9) church plans) for their clergy.

One of the biggest benefits for clergy in a 403(b) is the ability to take distributions in retirement designated as a housing allowance, which is exempt from income tax to the extent used for housing. If you are a member of the clergy who previously worked a secular job and have a 401(k) from that time, rolling those funds into your church’s 403(b) can be advantageous.

By doing so, you ensure that when you retire and withdraw money, more of it can potentially qualify for the housing allowance exclusion (since it will all be coming from a church plan). If instead you left your old 401(k) as is or moved it to a regular IRA, any withdrawals would be fully taxable with no housing allowance benefit.

Thus, clergy often try to consolidate retirement savings into their church-sponsored 403(b) before retirement for maximum tax efficiency.

Additionally, church plans may have different rules (they are exempt from ERISA and some IRS requirements), so be sure your church’s plan permits roll-ins; many do.

As a clergy member, also consider the stability and investment options of your 403(b)(9) plan. Many are managed by church pension boards or financial institutions with options tailored to ministry employees.

If the investment choices are solid, there’s little downside to consolidating. One note of caution: if you think you might leave the ministry and work elsewhere, you may later roll the funds back out, but you would lose the housing allowance treatment on those amounts going forward. In essence, clergy have a strong tax incentive to use the 403(b) as the home for their retirement assets.

Ensure you understand your plan’s features and keep documentation of the housing allowance designation for future distributions. The bottom line for clergy: rolling over a 401(k) into a clergy 403(b) can transform those savings into more tax-advantaged income in retirement, a benefit unique to your profession.

Real-World Example: From Corporate Tech to Public Education

After 20 years in the tech industry, Michael decided to become a high school teacher at age 50. He left a job at a large software company where he had accumulated a substantial 401(k) balance. His 401(k) was filled with low-cost index funds and even included some company stock.

Upon joining the public school district, he was offered a 403(b) plan through an insurance provider. The 403(b) options included a handful of mutual funds and annuities, many with higher fees than Michael was used to. Michael had to decide whether to roll his 401(k) into the new 403(b).

Michael compared the plans side by side. His 401(k) had an S&P 500 index fund charging 0.04% in fees, while the closest option in the 403(b) was an equity fund with a 0.80% fee. The school district’s plan did not offer any employer match or contribution. On the plus side, consolidating into the 403(b) would let Michael manage one account and take any needed loans as an active employee.

Michael also noted that if he stayed until age 55 and retired, withdrawals from the 403(b) would be penalty-free (rule of 55).

In the end, Michael chose not to roll over his 401(k) into the 403(b). Instead, he left his 401(k) with his former employer’s plan to continue benefiting from the ultra-low fees. He figured he could always roll it into an IRA later if needed.

He was particularly mindful of the company stock in his 401(k); by leaving it there, he preserved the option to use the NUA tax strategy in the future. Michael still contributed to his new 403(b) from his teaching salary (to get tax benefits each year), but he kept his prior savings separate.

This real-world scenario reflects a common outcome: a move to a higher-cost 403(b) led Michael to pause and ultimately stick with his well-performing 401(k) assets where they were.

Hypothetical Case Study: Preserving Access for Early Retirement

Jennifer is a hypothetical example of someone leveraging rollover decisions for early retirement flexibility. Jennifer, age 55, worked for a manufacturing company and built up a $500,000 401(k). She decided to semi-retire and took a new job at a nonprofit art museum, working part-time.

The museum offered a 403(b) plan, and Jennifer could roll her 401(k) into it. However, Jennifer is considering retiring fully by age 58, and she knows she might need to draw on her savings before 59½.

If Jennifer leaves her 401(k) in place with her former employer, she can take advantage of the rule of 55 – since she separated from the manufacturing company at age 55, that 401(k) can provide penalty-free withdrawals for her as she ages 55 to 59½.

If she rolled the money into the museum’s 403(b), she wouldn’t be able to access it penalty-free until she separates from the museum (or reaches 59½).

Jennifer looked at the museum’s 403(b) options: they were decent, and fees were reasonable, but nothing overwhelmingly better than her 401(k). She also considered rolling into an IRA, but that would subject any withdrawals to the 59½ rule (no age 55 exception in an IRA).

Jennifer chose to keep her 401(k) separate specifically to preserve the flexibility of penalty-free early withdrawals. Over the next three years, she worked part-time and did not touch her 401(k).

When she fully retired at 58, she began withdrawing from the old 401(k) to supplement her income, without paying any 10% penalty. Had she moved that money into the 403(b) or an IRA, those withdrawals would have been penalized or impossible until a later date.

This hypothetical case highlights how sometimes the best move is no move – leaving a 401(k) untouched can be the optimal strategy to maintain access to funds for early retirement.

Comparison of Rollover Options: 401(k) vs 403(b) vs IRA vs Cash-Out

When leaving a job, you generally have four choices for your old 401(k): roll it into your new employer’s plan (e.g., a 403(b)), leave it in your old employer’s 401(k), roll it into an IRA, or cash it out. The table below summarizes the pros and cons of each approach:

As you can see, cashing out is almost never advisable due to the heavy tax hit and lost growth. Rolling over to an IRA or a new plan keeps your nest egg growing tax-advantaged. The choice between the new 403(b) vs leaving it in the 401(k) vs an IRA hinges on the detailed factors we discussed.

Conclusion: Making the Right Choice

Deciding whether to roll over a 401(k) to a 403(b) comes down to comparing the specifics of your situation. There is no universal answer – it truly depends on the plans’ quality, your needs, and your future plans. As a summary:

• Roll over to the 403(b) if your new plan is strong (low fees, good investments) and you value having one account (especially if you might need loans or want to keep everything in your current employer’s plan for convenience or RMD deferral). This is often a good choice when the new 403(b) is equal or better than your old 401(k).

• Leave the 401(k) where it is (at least temporarily) if your old plan is excellent or your new one is mediocre. Also consider this if you separated at age 55+ and want penalty-free access to that money before 59½. You can always decide to roll it over later (to the 403(b) or an IRA) if circumstances change.

• Roll into an IRA if neither your old nor new plan is ideal, or if you want maximum investment flexibility. An IRA can be the best route for control over your money and fees, but remember the trade-offs (no loan option, different withdrawal rules, etc.).

Above all, avoid cashing out unless it’s an absolute emergency; preserving your retirement funds for the future is almost always the wiser decision.

In making your choice, consider consulting with a financial advisor, especially for complex situations (like managing company stock, coordinating with a pension, or leveraging special tax rules).

Each profession and individual will weigh factors differently: a corporate executive might prioritize fees and investment options, while a teacher or public servant might prioritize early access or plan simplicity, and a clergy member will prioritize tax treatment on distributions.

By understanding all the angles – tax implications, investments, costs, rules, and personal circumstances – you can confidently decide whether rolling over your 401(k) into a 403(b) is the right move for your retirement security.

Frequently Asked Questions

Can I roll over my 401(k) to a 403(b) without paying taxes?
Yes. A direct rollover from a traditional 401(k) to a traditional 403(b) is tax-free. You won’t owe taxes or penalties at the time of the transfer.

Does rolling over a 401(k) into a 403(b) affect my contribution limits?
No. Rollover amounts do not count toward annual contribution limits. You can still contribute the maximum to your 403(b) plan after rolling over your old 401(k).

Which is better: rolling my 401(k) into a 403(b) or an IRA?
It depends. Rolling into a 403(b) keeps your money in an employer plan (with loan access and certain protections); an IRA provides more investment choices. Compare fees, investment options, and features to decide.

What if I leave my 401(k) with my old employer?
You can do that. The account will remain tax-deferred and invested. However, you can’t add new contributions or loans, and you’ll have to manage a separate account (and watch for any fees).

Can I roll over my 401(k) into a 403(b) while I’m still at my old job?
Generally no. Most plans only allow rollovers once you leave the employer. An in-service rollover is rare (usually only after age 59½ if allowed by the 401(k) plan).

Who can participate in a 403(b) plan?
403(b) plans are for employees of public schools, colleges, universities, nonprofit organizations, hospitals, and churches. Corporate (for-profit) employees cannot have 403(b)s; they use 401(k) plans instead.

Does it cost anything to roll over a 401(k)?
Typically no. Direct rollovers are free of charge. You won’t pay a fee to move money between providers, though you should check if your old plan has any short-term redemption fees.

How long does a 401(k) to 403(b) rollover take?
Usually a direct rollover takes a few weeks. Often your old 401(k) provider will process the transfer within 1–2 weeks, and your new 403(b) plan deposits the funds shortly after.