do 403(b) plans allow in-service Roth rollovers
I am trying to find answers & have been sent back-&-forth between the employer and Vanguard (where 403(b) is at), without any answer, so I thought I’d check here.
The taxpayer would like to convert their Traditional 403(b) to a Roth account.
The taxpayer is a 50yo employee of a community college district, always on a semester-by-semester contract, so actually gets laid off at the end of every fall & spring semester, unemployed in-between semesters and qualified for unemployment benefits (no reasonable assurance of employment etc.)
Could the taxpayer be allowed to either do an in-service conversion to a Roth 403(b), or a direct rollover to a Roth IRA (during a semester they’re unemployed)?
Is either of these even theoretically an option, or not until 59 1/2?
Thank you for any input,
MK
Permalink Submitted by William Tuttle on Wed, 2021-11-17 02:51
A 403b plan can support an in-plan Roth rollover (IRR) just like a 401k, but only if the employer elects that feature.
Note: A plan must support designated Roth accounts in order to support an IRR. In which case you could simply make Roth employee deferrals.
The tax code and IRS regulations prohibit the in-service rollover of employee deferrals prior to age 59 1/2.
The tax code and IRS regulations allow but do not require plans to support in-service rollovers of employer contributions prior to age 59 1/2. However, most plans have restrictions based on age, length of service, time since contribution, suspension of employer contributions, etc…
You should check with your plan, but I think it is unlikely you are considered separated from service between semesters. That would allow unrestricted rollovers.
Permalink Submitted by Maria Ku on Wed, 2021-12-01 01:50
Thank you so much for your valuable insights!