Can I Convert My 403(b) to a Roth IRA?

Thursday, July 28, 2016

By Sarah Brenner and Beverly DeVeny
Follow Us on Twitter: @theslottreport
 

This week’s Slott Report Mailbag looks at the possibility of converting a 403(b) to a Roth IRA and outlines the qualified charitable distribution (QCD) process and who is eligible to take advantage of it. As always, we recommend you work with a competent, educated financial advisor to keep your retirement nest egg safe and secure. You can find one in your area here. 

 

1.

Hello,

I have a question about Roth conversions. I don’t have a traditional IRA; I’m a teacher and have a 403(b). Is it possible to convert this to a Roth, and if so, can I do it even if I’m still working? I’m thinking that in order to minimize the tax hit, I would do it in installments each year until the 403(b) is empty. Does this make sense to do? 

Thank you,

Joyce  

Answer:
Hi Joyce! Just because you do not have a traditional IRA, does not mean that a Roth conversion is not in the cards for you. The rules allow a 403(b) plan to be converted to a Roth IRA. Your plan of partial conversions may be a good strategy to minimize the tax hit you will take when you convert. There is a catch, though. You must be eligible under the plan terms to take a distribution. If you are still working, that may not be case for you.

You may want to look into whether your 403(b) offers a Roth component and whether the plan allows those still working to do in-plan conversions where you can convert your 403(b) funds to a Roth 403(b). Some plans, but not all, do. This may be a good option for you if want to convert, but are ineligible to take a distribution from your 403(b) because you are still working.

2.

Can you make a tax-free distribution from an inherited IRA to a qualified charity? If so, must the original owner of the IRA have been over age 70 ½ at death or would the beneficiary of the inherited IRA have to be over age 70 ½?  Thank you.

Answer:
QCDs are available not only to IRA owners, but also to IRA beneficiaries. To take a QCD from an inherited IRA, the beneficiary must be over age 70 ½ at the time of the distribution. The age of the deceased IRA owner does not matter. 

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