Hello,

Can a client- separated from service- keep a small balance in a 403b account with an outstanding loan and roll the remaining balance out into an IRA without triggering a taxable event?  Fidelity says ‘Yes’ and I’m interested in what others have seen on this matter.

I have a client who has an outstanding loan of $25K on his 403b account which has a balance of $275K.  He has separated service and is no longer working at the company but he continues to make loan payments of $950/month until the loan is paid off in October 2027.  We were told that, as long as he doesn’t roll over the full amount, there would not be a taxable event.  We were told that he could leave a small balance (i.e. $5K) in the plan and roll the remainder ($270K) out before the loan is paid off.

Does this sound right?

Thanks,

Chris