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When you leave a job you have certain options available that will ensure you have the funds from your 403b plan. One of the most preferred methods of keeping retirement assets and letting them grow tax-deferred is rolling over the funds from your 403b plan directly to an IRA (Individual Retirement Account). When you do this, you will avoid the 20 percent mandatory federal income tax which your employer will withhold and transfer to the IRS if you withdraw the money through a check, which is made out to you.
Rolling over a 403b plan to the IRA has many advantages. One of the main advantages is that you will be able to direct the funds to an investment of your choice. You will have many investment options. An IRA allows you to invest in mutual funds as well as individual stocks.
The other option available for you to rollover to an IRA is using the indirect method. Here, the money is handed over to you in the form of a check and you have 60 days to open an IRA and deposit the check to avail tax-deferral. However, when this happens, your employer will deduct 20 percent on the taxable amount and send it to the IRA. You, on the other hand, will have compensate this 20 percent and invest the entire 100 percent into your IRA account. You can claim the 20 percent when you are filing your income tax. However, if you do not put in the 20 percent, it will be considered as early withdrawal and you will have to income tax on it as well as a penalty.
There is no doubt that administratively it will cost you more to maintain an IRA but you will not have to pay any transaction costs. However, the advantages of rolling over funds from a 403b plan far outweigh the disadvantages.
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