How to avoid fees when rolling over a 403b?

[NestEggChick (formerly PFgal)]

I'd like to help a friend roll over a 403b into a Roth, but looking online it seems that she'll incur a penalty if she does that, since it will be like she's "withdrawing" the money in the fund. Is there a way to avoid that? If it matters, she's no longer employed at that company. Thanks!

[Catbert]

She can roll to a traditional IRA without paying taxes, but not a Roth.  No way around it.

She avoided (postponed) income taxes when it went in the 403b.  Money that goes into a Roth (whether as a rollover or contribution) is always after income tax.

If she doesn't like the 403b plan, then she can roll to traditional IRA w/o taxes or penalty.  Then as part of overall tax planning roll to a Roth and pay taxes as slowly or quickly as appropriate.

[purplish]

She can roll to a traditional IRA without paying taxes, but not a Roth.  No way around it.

She avoided (postponed) income taxes when it went in the 403b.  Money that goes into a Roth (whether as a rollover or contribution) is always after income tax.

If she doesn't like the 403b plan, then she can roll to traditional IRA w/o taxes or penalty.  Then as part of overall tax planning roll to a Roth and pay taxes as slowly or quickly as appropriate.

Yup, I'm actually doing the exact same thing right now- rolling a 403b into a traditional IRA.  She can then roll over that into a Roth, but there's a certain way to do that in order to not get penalized.  Just make sure that when she is rolling it over, tell them to do a DIRECT roll over.  Do not have them make the check out to her!  Or else she will get penalized.

[James]

Third hand instruction is a dangerous way to handle things like this. The best answer is how to get help and what is possible, not how to do it. So what I would tell your friend is not how to do it, but how to find out how to do it.


Your friend should gather the fund information and decide where to hold the final funds. For me that would be vanguard, but other companies would work if they are low fee and reputable. She should contact them and explain both what she has and what she wants to do with it. For me that would mean telling vanguard I have a 403b and would like to end with a Roth IRA, how do I go about making that happen. That way she is getting official answers from the company that will then help her implement the plan. If your friend doesn't understand the whole process, then checking out the plan with someone like you or the forum here is wise, prior to starting the transfers.


So while the process is pretty straight forward as Mary said, it is possible your friend has a unique aspect to her circumstance that we don't know. Or maybe terms are mixed up and it's some other sort of retirement fund. Best to go straight to the professionals who will then help with the transfers, as long as those professionals are not taking a cut or have financial motives attached.

[NestEggChick (formerly PFgal)]

Thanks everyone! James, you're right. I know she wants to use Vanguard, so I'll send her over to them. I've always found them to be very helpful, myself, so hopefully they'll be able to walk her through it. Thanks!

[James]

Thanks everyone! James, you're right. I know she wants to use Vanguard, so I'll send her over to them. I've always found them to be very helpful, myself, so hopefully they'll be able to walk her through it. Thanks!

Yep, I'll never forget my first interaction with them about 5 years ago. I was confused about what to do with my accounts, I knew what I wanted for an end result, but wasn't sure how to move everything around or what paperwork to do. So I called them and a friendly guy spent 25 minutes walking me through the steps and making sure everything was correct and could happen. He called back after every step and made sure everything was taken care of. Very happy with how everything worked out with them. :)