403b conversion
My wife has a 403b from an old employer.. should she roll it over into an IRA or Roth IRA? just let it sit? is there a penalty for rolling over? our combined income is over 200k
My wife has a 403b from an old employer.. should she roll it over into an IRA or Roth IRA? just let it sit? is there a penalty for rolling over? our combined income is over 200k
Permalink Submitted by Alan Spross on Mon, 2010-10-25 22:31
There is no tax, penalty, or withholding for a direct rollover to a traditional IRA. For a conversion to a Roth IRA, there is tax but no early withdrawal penalty and no mandatory withholding. If she has pre 1987 accruals, those amount are deemed the first dollars rolled over. An IRA generally has broader investment options, and more flexibility with beneficiary designations. In some states the 403b plan will have considerably broader creditor protection than an IRA.
The conversion decision is beneficial if your current marginal rate is less than it will be in retirement and in some cases if it will not be HIGHER than the average marginal rate in retirement. Note that if she is 70.5 this year, she must take an RMD prior to converting. She can also convert directly from the 403b to a Roth IRA if a conversion is beneficial. 2010 conversions can have the taxable income deferred until 2011 and 2012.