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

To roll over a 403(b) to a Roth IRA, open a Roth IRA, ask your 403(b) plan administrator for a direct rollover, and report the pre-tax amount you move as ordinary income for that tax year. There is no income limit on the conversion, and no 10% early-distribution penalty on the conversion itself, but the tax bill can be sizable because the converted amount stacks on top of your other income.

When You Can Move the Money

A 403(b) will not release funds until you have a distributable event. Leaving the employer that sponsors the plan is the most common one: after you resign, retire, or are let go, your full vested balance becomes available.¹

If you are still working for the plan sponsor, your salary-reduction contributions cannot be distributed until you reach age 59½, become disabled, or qualify for a hardship withdrawal.² Once you turn 59½, most plans allow in-service distributions, so you can convert while still employed. Read your plan’s Summary Plan Description; some plans are more restrictive than the federal floor.

One boundary worth noting: if you received a share of a former spouse’s 403(b) through a Qualified Domestic Relations Order, you can roll that share into your own Roth IRA as if you were the plan participant.³

What to Set Up Before You Call the Plan

Open the Roth IRA first. Most brokerages and custodians let you complete an application online in a few minutes. Once the account is open, you’ll need a handful of details to fill out the 403(b) plan’s paperwork:

Your 403(b) account number, from your statement or online portal
Your new Roth IRA account number
The receiving institution’s routing and mailing information, so the check or wire goes to the right place
Liquidation instructions telling the 403(b) which investments to sell, or that the full balance should be moved

The 403(b) administrator will usually ask you to complete a Rollover Distribution Form. Choose the “Direct Rollover” option. Picking the wrong distribution type can trigger withholding you did not intend. Some providers also require a Medallion Signature Guarantee or a notarized signature before they release funds.

Direct Rollover vs. Indirect Rollover

How the money moves changes what you owe and when.

Direct Rollover

In a direct rollover, the 403(b) sends the money straight to your Roth IRA custodian. The check is made payable to the receiving institution for your benefit, or the transfer happens electronically. Because you never take possession of the funds, no tax is withheld from the transfer.⁴ Use this method unless you have a specific reason not to.

Indirect (60-Day) Rollover

If the plan sends the distribution to you personally, federal law requires it to withhold 20% of the taxable amount for federal income taxes.⁵ You then have 60 days from receipt to deposit the full original amount, including the withheld 20%, into your Roth IRA.⁶

Say you take a $100,000 indirect rollover. The plan sends you $80,000 and holds back $20,000. To complete the full rollover you must deposit $100,000 into the Roth IRA within 60 days, using $20,000 from other savings to replace what was withheld. If you deposit only the $80,000 you received, the missing $20,000 is treated as a taxable distribution, and if you are under 59½ it can also trigger the 10% early withdrawal penalty.⁶ You recover the withheld $20,000 when you file your return, but you have to front the cash first.

Miss the 60-day deadline and the IRS treats the whole amount as taxable income for the year. Limited self-certified waivers exist for events like serious illness, postal error, or a financial institution’s mistake, but the safer path is a direct rollover.

How the Conversion Is Taxed

The taxable portion of what you convert gets added to your ordinary income for the year. Federal rates for 2026 run from 10% to 37%, and the converted amount stacks on top of your wages and other income, so a big conversion can push part of the money into a higher bracket.⁷ A 2026 single filer enters the 24% bracket at $105,700 in taxable income and the 32% bracket at $201,775. For joint filers those thresholds are $211,400 and $403,550.

Pay the tax from money outside your retirement accounts. If you direct the 403(b) to withhold from the rollover to cover taxes and you are under 59½, the withheld amount is treated as an early distribution and hit with a 10% penalty on top of ordinary income tax.⁸ Paying from a checking or savings account preserves your full balance inside the Roth IRA.

Converting in Pieces to Manage Your Bracket

You are not required to convert the whole balance in one year. A partial conversion moves a specific dollar amount, enough to fill your current bracket without spilling into the next. If you file single and your taxable income before the conversion is $80,000, you could convert about $25,700 in 2026 before crossing into the 24% bracket. Anything above that is taxed at 24% rather than 22%.

Spreading a large balance across multiple tax years keeps more of each converted dollar taxed at a lower rate. The strategy works especially well in a year when your income is temporarily lower, such as after retirement but before Social Security begins, during a sabbatical, or in a year with large deductions. Each year’s conversion is its own event with its own five-year holding period.

Estimated Tax Payments After a Conversion

A conversion can create a tax bill that your regular paycheck withholding will not cover. If you expect to owe $1,000 or more after subtracting withholding and refundable credits, the IRS generally requires quarterly estimated payments.⁹ Missing them can trigger an underpayment penalty even if you pay in full by the April deadline.

You avoid the penalty by meeting a safe harbor: pay at least 90% of the current year’s tax through withholding and estimated payments, or at least 100% of last year’s total tax (110% if your prior-year adjusted gross income was over $150,000). The 2026 estimated payment deadlines are April 15, June 15, September 15, and January 15, 2027 for the fourth quarter.

If you are still employed, another option is to raise federal withholding from your paycheck for the rest of the year. Paycheck withholding is treated as if paid evenly across all four quarters, which can cure an underpayment problem from earlier in the year even if you adjust late.⁹

The Five-Year Rule on Converted Funds

Withdrawals from a Roth IRA come out in a set order: regular contributions first, then converted amounts (oldest first), then earnings.¹⁰ Each conversion carries its own five-year holding period.

If you withdraw a converted amount within five years of the conversion and you are under 59½, that amount is subject to a 10% early distribution penalty, even though you already paid income tax on it. The clock starts on January 1 of the year you complete the conversion, so a 2026 conversion satisfies the rule on January 1, 2031. Once you reach 59½, the five-year recapture penalty no longer applies to converted amounts. The conversion event itself is exempt from the 10% early distribution penalty by statute.⁸

If Your 403(b) Holds After-Tax Contributions

Some 403(b) plans permit after-tax (non-Roth) contributions on top of the standard pre-tax deferrals. When an account contains both, any single distribution generally includes a proportional share of each type. You cannot pull out only the after-tax money.¹¹

IRS rules do let you split one distribution to two destinations: pre-tax money to a traditional IRA, after-tax money to a Roth IRA. Because the after-tax contributions were already taxed when earned, moving that portion to a Roth IRA creates no additional income tax. Only the pre-tax amounts and any earnings on the after-tax contributions are taxable on conversion.¹¹ Ask your plan administrator whether any of your balance is after-tax before you file the rollover paperwork.

Impact on Medicare Premiums

If you are on Medicare or close to age 65, factor in the Income-Related Monthly Adjustment Amount, or IRMAA. Medicare Part B and Part D premiums include a surcharge based on modified adjusted gross income from two years earlier, so a 2026 conversion affects your 2028 premiums.

For 2026, IRMAA surcharges for Part B start when income exceeds $109,000 for single filers or $218,000 for joint filers. At the lowest surcharge tier the extra cost is $81.20 per month for Part B and $14.50 per month for Part D. At the highest tier, single-filer income of $500,000 or more, the added Part B cost is $487.00 per month.¹² Partial conversions across several years can keep you below the thresholds.

Tax Forms You Will See

Three forms document a 403(b)-to-Roth conversion:

Form 1099-R arrives from your 403(b) provider by early February of the year after the conversion. For a direct rollover to a Roth IRA, Box 7 shows distribution code G and Box 2a shows the taxable amount. Code G indicates a direct rollover, but tax is still owed because the money moved from a pre-tax account to a Roth.¹³
Form 1040 is where the taxable portion goes, on line 4b. It gets added to your other income and taxed at ordinary rates.
Form 8606 Part II calculates the taxable amount of the conversion, and Part III tracks your basis in the Roth IRA. That basis matters later; it prevents you from being taxed a second time when you withdraw the converted funds.¹⁴

Keep every year’s Form 8606. The IRS uses it to determine the tax-free portion of future Roth distributions, and rebuilding basis from scratch years later is hard.¹⁵

State Income Tax

The conversion may also be taxable at the state level. State rates on retirement distributions run from 0% to over 13%. Some states have no income tax, some fully tax Roth conversions as ordinary income, and some offer partial exemptions for retirement income. If a move is on the horizon, converting in a year you reside in a lower-tax or no-tax state can produce meaningful savings.

1
Office of the Law Revision Counsel. 26 U.S.C. 403 – Taxation of Employee Annuities
2
eCFR. 26 CFR 1.403(b)-6 – Timing of Distributions and Benefits
3
Internal Revenue Service. Retirement Topics – QDRO: Qualified Domestic Relations Order
4
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
5
Office of the Law Revision Counsel. 26 U.S.C. 3405 – Special Rules for Pensions, Annuities, and Certain Other Deferred Income
6
Internal Revenue Service. Topic No. 413, Rollovers From Retirement Plans
7
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
8
Office of the Law Revision Counsel. 26 U.S.C. 408A – Roth IRAs
9
Internal Revenue Service. Estimated Tax
10
eCFR. 26 CFR 1.408A-6 – Distributions
11
Internal Revenue Service. Rollovers of After-Tax Contributions in Retirement Plans
12
Centers for Medicare & Medicaid Services. 2026 Medicare Parts A and B Premiums and Deductibles
13
Internal Revenue Service. 2025 Instructions for Forms 1099-R and 5498
14
Internal Revenue Service. Instructions for Form 8606 (2025)
15
Internal Revenue Service. 2025 Instructions for Form 8606 – Nondeductible IRAs