You can roll a 403b (non-profit) into 401k (for-profit) by following certain conditions. The essential factor for the rollover is the eligibility. If you’re employed in a private sector, you’re eligible for 401k. Rollover can be done by two methods: direct and indirect, which will be discussed later. You may also need a financial advisor to ensure the process goes smoothly.
How Can You Roll A 403b To 401k?
To roll over your 403b to 401k, you have to consider the following options:
Eligibility
Both 401k and 403b are tax-deferred retirement plans offered to the employees of different companies. These plans are employer-sponsored, and if you get a job in a for-profit company, you can participate in 401k.
Direct and Indirect Rollovers
Rollover is essential when switching jobs and wanting your funds to move from the previous plan to the next one. It has two types: direct and indirect.
The direct rollover involves the transfer of funds from your old plan (of your old job) to your new plan administrator. The funds move directly without landing in your bank.
An indirect rollover allows you to receive funds in your bank account. You can deposit the funds to the next plan administrator within 60 days. If the limit exceeds 60 days, it will be considered an early withdrawal subject to a 10%-20% penalty. Additionally, you’ll be subject to higher taxes because your increased income places you in a higher tax bracket for that year.
Do The Paperwork
Before transferring your 403b to 401k, do the necessary documentation. You need to fill out the rollover forms provided by the administrators of both plans.
You will need to fill out the following forms:
403b Distribution Form will be provided by your current plan administrator and requires details of your new 401k plan, which will receive funds. You must provide the plan number, reason for distribution, and rollover account details.
Your 401k plan administrator provides the 401k Rollover Acceptance Form to ensure the plan accepts rollovers from other plans.
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Internal Expenses
You need to look at the plan document to determine its investment options and internal expenses. Opt for the option that costs you less, so you don’t have to settle on your savings.
Although the rollover does not cost you much, below is the estimated cost for the rollover:
- Administrative Fee: Some plans may charge a transfer fee ranging from $25 to $75.
- Exit Fee: Your 403b plan administrator may charge an exit fee of $50-$100.
- Investment Fee: It is charged when you need to liquidate certain investments and is between 0.5%-2% of the investment value.
- Advisor Fee: Your financial advisor charges it. Depending on their fee structure, it may range from $200 to $500.
Conclusion
It is best to roll over your funds while switching jobs. And the best way to do so is by direct rollover. Considering you already have an emergency fund saved aside, this is an easy and risk-free approach. You can also do an indirect rollover and use funds for (less than) 60 days.
It is always advised to gather as much information as you can about policies of your plan administrator regarding fee policies and ask for best practices from workplace colleagues and seniors. Having a financial advisor is also essential to avoid penalties and tax hikes.
Frequently Asked Questions
Which option is better, direct or indirect?
Direct rollover is suggested as it is quick and risk free.
What should I do with my old 403b?
You can roll over your 403b to a new eligibile retirement plan, either 401k or an IRA.
What if 401k does not accept rollovers?
If your new 401k does not accept funds from the previous plan, transfer them into an IRA.
References:
investopedia.com/ask/answers/roll-into-403b.asp
meetbeagle.com/resources/post/what-can-i-roll-my-403b-into
nb.fidelity.com/bin-public/070_NB_PreLogin_
Pages/documents/403b_Rollover_585060.pdf (Rollover Distribution Form)
