"Rolling over" a 403b

[kyrie]

Hello friends! Usually I just lurk here to gain wisedom but now I am perplexed....
My DH has a 403b from a former employer. We are no longer associated with that church and our current church has no 403b set up. Its not really able to do anything in that department! Anyway, we want to 'roll over' this account into something Our agent recommended either into a Traditional IRA or a Roth IRA, but said the Roth would trigger a taxable event.
Is this right? Somehow it doesn't sound right to me, but I'm no expert.

Are there any other options/ideas?

Thanks for all of your input!

[noppenbd]

Yes, your agent is right. 403b is probably 100% pretax money (meaning you never paid taxes on it). Rolling over to a traditional IRA has no tax consequences, because you pay the taxes on t-IRA money when you withdraw it. You can convert a tIRA to a Roth IRA but you have to pay tax on the amount you convert. Then in retirement you can withdraw the Roth IRA money tax free. Basically the conversion allows you to pay the tax now to avoid paying it in retirement.

Whether it makes sense to pay the tax (convert 403b to Roth IRA) now depends on your current and expected income and tax rates. You can also convert a portion of it at a time to prevent the conversion from being taxed at a high rate.

[creditcardfree]

noppenbd...is correct, as is your agent.

Also you can do all of this on your own through a mutual fund company such as Vanguard, T Rowe Price, ect. These, along with others, are no load funds...you pay no sales commission. Your agent most likely will. Pick a company, pick a fund, and fill out an application and their rollover form. The mutual fund company will then arrange for the funds to be sent to them on your behalf. No charge!

[kyrie]

Its the taxes that I'm mainly concerned with. I know a Roth is great (have some separately). Good point about it being pre-tax Noppenbd... guess I forgot about that.
So no other options (right)?

[atomicrc11]

Also, find out what kind of 403b it is. A 403(b) 7 hold mutual funds and it quite easy to rollover and will not have fees. If it is a 403(b) and contains variable annuities, then there may be surrender charges or other fees associated with rolling it over. Talk with the company you choose to roll it over to whether it be Fidelity, TIAA-CREF, Charles Schwab, T. Rowe Price or Vanguard. They will help you with the process and tell you what will happen. I've worked with mostly Fidelity but also T. Rowe Price, TIAA-CREF and Vanguard. Most of them were rolling out of old employers plans into IRAs and they were all helpful from 401ks to 403bs. Mine are all now with Fidelity to keep things simple for me but any of those companies will do a fine job.

[kyrie]

It is a 403b in mutual funds. Can it be converted to a 401k? I know that's doubtful... just thought I should ask. No other 'vehicles' for it though, right?

Its lost so much money I guess the taxes on it would be better now rather than later! lol.

Thanks again all!

[noppenbd]

If the new employer doesn't have a 403b/401k you can't move the 403b monies into one.

I think it makes sense to rollover to a traditional IRA or Roth IRA. The choice between each one depends on your income for this year. Do you know your expected income for 2009? If not, have you done your 2008 taxes yet? What was your taxable income in 2008, and do you expect it to be lower or higher in 09?

[kyrie]

I expect essentially no change, and he has had no income this year or last (again, no changes either). But my income, and we file jointly, was like $30k AGI.
Guess we'll go with the Roth. Thanks, especially noppenbd.

[noppenbd]

I think you are safe to convert the whole thing to a Roth, as long as we are not talking more than $40-50K. You will have to set aside some money throughout the year because your taxes will be high next year. How much is the 403b worth?

[kyrie]

Well, its lost more than 1/2 its value. Its probably at $7-$8k right now!

[red92s]

Its lost so much money I guess the taxes on it would be better now rather than later!

Depressed values make this an especially attractive time to do Roth conversions, for exactly the reason you stated above.

[noppenbd]

Well, its lost more than 1/2 its value. Its probably at $7-$8k right now!

You should set aside about 15%, or $1000-1200, over the course of 2009 so you can pay the extra tax bill on the Roth conversion. You could also adjust your W4 to set aside an extra $50-60 (if paid every 2 weeks).