How to Move a 403(b) to a Roth IRA: Taxes and the Five-Year Rule

To move a 403(b) to a Roth IRA, ask your 403(b) plan administrator to send the balance directly to a Roth IRA custodian as a trustee-to-trustee rollover, and plan to pay income tax on the pre-tax portion in the year the conversion happens. Federal law allows the transfer, there is no income limit on the conversion, and the once-per-year rollover restriction that applies to IRA-to-IRA transfers does not apply here.¹ The rest is timing, method, and paperwork.

When Your Plan Will Let You Move the Money

A 403(b) is a retirement plan offered by public schools, churches, and organizations that are tax-exempt under Section 501(c)(3).² Most 403(b) plans only release funds after a specific triggering event: leaving the employer, reaching age 59½, becoming disabled, or the plan terminating.³ If you still work for the sponsoring employer, you typically can’t touch those funds unless the plan allows in-service distributions, which many plans permit once you turn 59½.

Roth conversion eligibility itself has no income cap. You can convert any amount regardless of what you earn.

Direct Rollover Versus Indirect Rollover

Two mechanisms exist, and the choice matters.

Direct Rollover

In a direct rollover, sometimes called a trustee-to-trustee transfer, your 403(b) administrator sends the funds straight to your Roth IRA custodian. You never handle the money. The transfer moves electronically or by a check made payable to the receiving institution, often formatted as “Custodian Name, FBO [Your Name]” to show the funds are for your benefit. No federal tax is withheld on a direct rollover, so the full balance lands in the Roth IRA.⁴ You still owe tax on the converted amount when you file, but the whole sum stays invested in the meantime.

Indirect Rollover

With an indirect rollover, the 403(b) provider cuts a check to you, and you deposit the funds into the Roth IRA yourself. Two things make this harder. First, the plan must withhold 20% of the taxable distribution for federal income tax, and that withholding cannot be waived.⁴ Second, to complete the rollover you have to deposit the full original distribution, not just the 80% you received. You cover the withheld 20% from other savings and recover it as a credit when you file. If you deposit only the 80% that arrived, the missing 20% is treated as a taxable distribution and may trigger the 10% early withdrawal penalty if you’re under 59½.⁵

There’s also a hard deadline. You have 60 days from the date you receive the distribution to deposit it into the Roth IRA. The clock starts when the check arrives, not when it was mailed.¹ Miss it and the IRS treats the whole amount as a permanent withdrawal: full income tax due, plus the 10% penalty if you’re under 59½. Postal delays and bank processing times do not pause the clock. The IRS does allow limited self-certification for a waiver in specific hardship situations under Revenue Procedure 2020-46, but that’s a safety net, not a plan.⁶

For most people, the direct route is simpler and safer.

What the Conversion Costs in Tax

When you roll a traditional (pre-tax) 403(b) into a Roth IRA, the taxable portion is added to your gross income for the year of the conversion.⁷ That includes your original pre-tax contributions and all accumulated earnings. You never paid income tax on that money going in, so you owe it now, in exchange for future qualified withdrawals coming out tax-free.

A large conversion can push you into a higher bracket. For 2026, a single filer pays 10% on income up to $12,400, 12% on income from $12,401 to $50,400, and 22% on income from $50,401 to $105,700, with higher rates above that.⁸ A $60,000 conversion stacked on a $50,000 salary would push a chunk of the converted amount into the 24% bracket. Spreading conversions across multiple tax years is a common way to manage this.

Because a conversion adds taxable income without matching paycheck withholding (especially with a direct rollover where nothing is withheld), you may need estimated tax payments during the year to avoid an underpayment penalty. That penalty generally kicks in if you owe more than $1,000 after withholding and credits. You can also avoid it by ensuring total withholding and estimated payments cover at least 90% of the current year’s tax or 100% of last year’s tax, or 110% if your adjusted gross income exceeded $150,000.⁹

After-Tax Contributions Aren’t Taxed Twice

If your 403(b) holds after-tax contributions (separate from designated Roth contributions), that portion keeps its tax basis and isn’t taxed again on conversion. Only the pre-tax contributions and all earnings are taxable.¹⁰ You can even split a distribution: after-tax dollars to the Roth IRA, pre-tax earnings to a traditional IRA, keeping the immediate tax bill down.

Designated Roth 403(b) Balances

Some 403(b) plans offer a designated Roth option funded with after-tax dollars. Rolling a designated Roth 403(b) into a Roth IRA is generally not taxable because you already paid income tax on those contributions.¹¹ The IRS requires that nontaxable amounts move by direct trustee-to-trustee rollover. If you take an indirect distribution of Roth 403(b) funds and miss the 60-day window, the earnings portion can become taxable. One upside of this move: Roth IRAs are not subject to required minimum distributions during the owner’s lifetime, while Roth 403(b) accounts are.

RMDs Can’t Be Rolled Over

If you have reached the age when required minimum distributions apply, take your RMD for the year before rolling the rest. The RMD portion is not eligible for rollover.¹ Roll over an amount that includes the RMD by mistake, and you’ll have to remove it from the Roth IRA as an excess contribution.

The Five-Year Clock on Converted Money

After the conversion, a separate five-year clock starts for that converted amount. Withdraw any of it within five years while under age 59½ and you owe a 10% early distribution penalty on the taxable portion of the conversion, even though you already paid income tax on it at the time of conversion.⁷ Each year’s conversion runs its own five-year period.¹²

The period begins January 1 of the tax year the conversion happens. A conversion completed any time in 2026 starts its clock on January 1, 2026, ending January 1, 2031. Once you reach 59½, the recapture penalty no longer applies to converted amounts regardless of how long they’ve sat in the account.¹²

There’s a separate five-year rule for Roth IRA earnings to come out tax-free: any Roth IRA must be held for at least five tax years before earnings qualify. That clock starts with the first tax year you ever contributed to or converted into any Roth IRA, and it only needs to be satisfied once.⁷

Reporting the Conversion

Your 403(b) administrator will issue Form 1099-R for the year of the conversion, showing the gross distribution in Box 1 and any federal tax withheld in Box 4.¹³ Report a direct rollover on Form 1040 lines 5a and 5b, with the taxable amount on line 5b.

Use Form 8606 to track the basis of your Roth IRA. The Form 8606 instructions have you include amounts rolled from qualified plans to a Roth IRA when calculating Roth basis on Line 24.¹⁴ Getting basis right matters because it drives how future withdrawals are treated. Missing or misreporting the conversion can produce penalties and interest on unpaid tax, so check your total tax picture before the filing deadline and adjust estimated payments if the numbers point that way.

One boundary worth noting before you move a large balance: employer plans covered by ERISA generally get broader protection from creditors than Roth IRAs do. If liability exposure matters in your situation, weigh that before converting.

1
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
2
Internal Revenue Service. IRC 403(b) Tax-Sheltered Annuity Plans
3
Internal Revenue Service. Retirement Plans FAQs Regarding 403(b) Tax-Sheltered Annuity Plans
4
Internal Revenue Service. Topic No. 413, Rollovers From Retirement Plans
5
Internal Revenue Service. Topic No. 557, Additional Tax on Early Distributions From Traditional and Roth IRAs
6
Internal Revenue Service. Revenue Procedure 2020-46
7
Office of the Law Revision Counsel. 26 USC 408A – Roth IRAs
8
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
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Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty
10
Internal Revenue Service. Rollovers of After-Tax Contributions in Retirement Plans
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Internal Revenue Service. Rollover Chart
12
Internal Revenue Service. Publication 590-B, Distributions From Individual Retirement Arrangements
13
Internal Revenue Service. Instructions for Forms 1099-R and 5498
14
Internal Revenue Service. Instructions for Form 8606