Taxes on my 403

[JO41696]

Next year I'm going to have to take money out of my 403b (TDA retirement account) to pay taxes on it. Is there a retirement or investment account I can transfer my money to so that I don't have to pay taxes on it? Thank you for replying.

Gwendolyn B

[email address removed]

[marctu · Accepted solution]

A 403(b) plan (also called a tax-sheltered annuity or TSA plan) is a retirement plan offered by public schools and certain 501(c)(3) tax-exempt organizations.  

Most pre-retirement payments you receive from a retirement plan or IRA can be “rolled over” by depositing the payment in another retirement plan or IRA within 60 days.

So how do you do a "roll over".  There are three ways:

1. Direct rollover – If you’re getting a distribution from a retirement plan, you can ask your plan administrator to make the payment directly to another retirement plan or to an IRA. Contact your plan administrator for instructions. The administrator may issue your distribution in the form of a check made payable to your new account. No taxes will be withheld from your transfer amount.
    
2. Trustee-to-trustee transfer – If you’re getting a distribution from an IRA, you can ask the financial institution holding your IRA to make the payment directly from your IRA to another IRA or to a retirement plan. No taxes will be withheld from your transfer amount.
    
3. 60-day rollover – If a distribution from an IRA or a retirement plan is paid directly to you, you can deposit all or a portion of it in an IRA or a retirement plan within 60 days. Taxes will be withheld from a distribution from a retirement plan (see below), so you’ll have to use other funds to roll over the full amount of the distribution.

So you can avoid the immediate income tax impact by rolling the 403 (b) over.   A direct rollover or trustee-to-trustee transfer, if available, are the best options as there would be less work on your part.  

Also if you are taking the money out and not rolling it over you will have income tax implications.  As to what investment vehicle to put it in, this is best left to the investment professionals. 

Best of luck with this, and feel free to ask more questions as you get closer,

All the best,

Marc T. 

[Terri Lynn]

Hello JO41696,

Thanks for the question regarding your 403b retirement/annuity plan and if you can transfer it to a different type of plan, where you would not have to pay taxes on the distribution.

As you are aware, withdrawals from most types of retirement plans incur income taxes. however, one  exception to this rule,  is the Roth IRA. You can always withdraw an amount equal to your contributions without paying taxes. Once you reach age 59 1/2, the earnings can come out tax-free as well, as long as the Roth has been established for at least 5 years. There is also not a required minimum distribution from a Roth IRA until the owner, passes away.

Now the 403b annuity plan distribution will be taxed, however the  tax you pay on the distribution depends on your tax bracket and whether you made any nondeductible (after-tax) contributions to the plan. If you made such contributions, those wouldn’t be taxed when they came out. For example, if you made $2,000 in after-tax contributions and your retirement account was worth $10,000, then only 80% of your withdrawal would be taxed.

**Note: Most commonly, people do  make only deductible (pretax) contributions to their plans, so their entire distribution becomes  subject to income tax at their marginal tax rate. 

Hopefully this helps!!

Thanks,

Terri

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