Can you transfer a 403b & 401a Retirement Account from one institution to another without paying a tax penalty

[SAR66]

Can you transfer a 403b & 401a Retirement Account from one institution to another without paying a tax penalty? I have retired and am considering transferring my 403b & 401a mutual fund accounts to another financial management institution. I've searched the IRS website and can find documents about a rollover from one employer's 401 to another but nothing specifically about transferring post retirement. Any information will be appreciated. 

[Mike9241]

Once you leave a company with a 403(b) plan, you will have the option to roll the money over to another type of retirement plan. You can open an IRA with a financial institution of your choice and roll the money into that or roll funds into a 401(k) or 403(b) from another employer.  

401(a) rollover rules are similar to what they are for the rollover of other tax-sheltered retirement plans. You can roll the proceeds of the plan over to the qualified plan of another employer (if the future employer accepts such rollovers), or into a traditional or self-directed IRA account.

The following exceptions apply to rollovers from a 401(a) plan, and they are common exceptions on all retirement plans. You cannot rollover money from the following sources:

Required minimum distributions
Substantially equal period payments
Hardship distributions
Amounts distributed to correct excess distributions
Amounts that represent loans from your plan
Dividends from your employer-issued securities (not likely with government or non-profit employers)
Life insurance premiums paid by the pan
Much as is the case with 401(k) plans, you can also either roll the plan balance into a traditional IRA, do a Roth IRA conversion, or a combination of both.

There is a bit of a complication with 401(a) rollovers if the plan includes both pretax and after-tax contributions. If the rollover includes after-tax contributions, this will represent a cost basis in your IRA.

These will be funds you can withdraw free from income taxes, since the tax was already paid on them during the contribution phase.

Once you take withdrawals from the IRA, the cost basis portion will be nontaxable, but the pretax contribution portion, as well as investment earnings, will be taxable to you as ordinary income.

But as is the case with IRA distributions in general, you cannot withdraw cost basis amounts first in order to avoid taxes. The distribution will be pro-rated across all of your IRAs and only a percentage of your withdrawal will be tax-free.

When a 401(a) rollover takes place, the pretax contributions and earnings are often rolled over into a traditional IRA, while the after-tax contributions are rolled over into a Roth IRA.

It is also possible to transfer the entire balance to a Roth IRA by doing a Roth conversion. This process works the same as it does for a Roth conversion from any other type of tax-sheltered retirement plan.

You will pay ordinary income tax – but not the 10% early withdrawal penalty – on the portion of the plan that represents your pretax contributions and accumulated investment earnings, but not on the after-tax contributions.

note that direct rollovers should be done.  they're tax-free. with an indirect rollover, 20% withholding is required and you have to make it up so as not to be taxed on the portion withheld.  another downside to indirect rollovers is you only have 60 days to complete them. failure results in taxation of all amounts not rolled over during those 60 days. 

you are best advised to discuss things with the new financial institution. 

[NCperson]

@SAR66 - simple answer: if you are over 59.5 years old, there is no 10% tax penalty. 

And as long as the money makes its way from one financial insitution to another within 60 days, there is no taxable event.  The receiving firm should be able to walk you through how to do this simply and easily. 

[Opus 17]

Yes, this is a rollover or a direct transfer. 

You can move a 403b to an IRA.  If it is pre-tax funds, it will move to a traditional IRA, if it is a Roth-option after-tax 403b, it will move to a Roth IRA.  You want to do a direct transfer, from one trustee to the other--open the IRA, then give the IRA account information to the 403b trustee to do a direct transfer.  The direct transfer is not subject to tax or penalties and you can do as many direct transfers as you like.  

You could do an indirect rollover, meaning that the 403b sends you the funds by check or electronically, and then you send the funds to the IRA.  But you have a 60 day time limit, or else the 403b withdrawal is taxable and subject to penalties.

The rules for a 401a are basically the same; pre-tax money can be rolled over to a traditional IRA and after-tax money can be rolled over to a Roth IRA.  Again, you want a direct transfer if you can arrange it.

You can rollover pre-tax funds into a Roth IRA, but that also counts as a conversion and will be subject to income tax, but not a penalty.

There is a chart here. https://www.irs.gov/pub/irs-tege/rollover_chart.pdf