Converting a traditional 403(b) to a Roth 403(b) is generally advantageous if you expect to be in a higher tax bracket during retirement, as it allows you to pay taxes now and enjoy tax-free withdrawals later. It requires paying income taxes on the converted amount in the year of conversion.
If the 403b plan has good investment options and lower expense ratio than what you can get in a Roth IRA, go with that. Otherwise, the IRA has flexibility that wins over the 403b, if all else is equal.
It doesn't make sense to do a Roth conversion if you expect to be in a lower tax bracket in retirement, can't afford the upfront tax bill without touching the converted funds, need the money soon (within 5 years), plan to leave the IRA to a charity, or if the conversion triggers Medicare premium increases (IRMAA) that outweigh benefits. Essentially, it's a bad idea when paying taxes now at a high rate costs more than the future tax savings, or if you lack cash and the time for the Roth to grow.
You can retain your old 403(b) if the plan allows it, roll your money over into an IRA or a Roth IRA, or withdraw your money and put it into a taxed portfolio. There are several steps for each process, and you should have an understanding of the tax implications and withdrawal rules before making any decisions.
The answer varies based on your desired retirement lifestyle, expected expenses, other income sources and retirement age. While financial advisors often suggest aiming to have put away eight to 10 times your annual salary by retirement age, your target may differ.
To elect to make a 403(b) Roth conversion, the plan participant would work with the plan administrator to complete the requisite paperwork. The plan administrator would then report the conversion on IRS Form 1099-R. The plan participant would then be required to report the converted amount on their IRS Form 1040.
Trap: Having income taxes withheld when requesting a Roth conversionmight subject the withholding amount to a 10% additional tax. Distributions that are made from a traditional IRA before the owner reaches age 59½ are subject to a 10% additional tax, unless an exception applies.
When you leave a job with a 403(b) plan, you have the option to roll over your 403(b) into an IRA. Provided this is done according to IRS guidelines, you won't pay any taxes. One advantage of an IRA account is that it often offers more investment options than 403(b) plans.
Some districts may allow Roth 403(b) contributions. Your 2026 Roth contributions and your pre-tax contribution combined must not exceed the $24,500 limit for participants under age 50, $32,500 for participants age 50 – 62, or $35,750 for participant age 60-63.
With a Roth, you'll pay income tax on your contributions and enjoy tax-free distributions in retirement. That can make it a good option over a traditional plan if you expect your tax rate to be higher when you retire.
You can avoid paying taxes on a 403(b) by using a Roth 403(b), where contributions are after-tax but qualified withdrawals are tax-free, or by using a Traditional 403(b) and deferring withdrawals until retirement, then taking them strategically (or not at all, if you don't need the income), but you'll pay ordinary income tax on those distributions; however, you can't avoid all taxes, as Roth earnings are tax-free only if qualified (age 59.5 & 5 years), and traditional withdrawals are always taxed.
In general, to make a qualified tax- and penalty-free withdrawal of Roth contributions and earnings, the following conditions must be met: the account must have been established for at least five years, and. the withdrawal must be taken at or after age 59 1/2, or as the result of disability or death.
To avoid the 10% early withdrawal penalty on a Roth conversion, you generally need to wait until you're 59½ and satisfy the separate five-year rule for each conversion, but you can withdraw the converted amount penalty-free (though still taxed) if you're over 59½ or meet specific exceptions like disability, death, or using it for certain expenses (first-time home, education) after the 5-year clock for that conversion passes, while original contributions are always penalty-free to withdraw.
Overall, Roth conversions can be a great way for newly retired clients to have more control of their tax situation late in life, especially those who didn't have access to Roth accounts when they were young.
Yes, you must pay taxes on a Roth conversion in the year you make the conversion, as the converted amount is added to your taxable income, but the actual tax payment isn't due until the following year's tax deadline (usually April 15th), though you may need to make estimated tax payments sooner to avoid penalties. You should plan for this upfront tax bill, ideally paying it with funds outside the conversion to maximize the tax-free growth in the Roth account.
If you are maximizing your 403(b) contributions, or you are concerned about the ability to access your contributions before retirement, you may want to contribute to the Roth IRA. However, not everyone is eligible to contribute to a Roth IRA. Your income must not exceed the stated Internal Revenue Service limits.
When you retire, the best thing for your 403(b) is usually to roll it over into an Individual Retirement Account (IRA) for consolidation, lower fees, and more investment choices, though you can also leave it in the plan (if allowed), take a lump-sum/periodic payments, or consider a Roth conversion, depending on your age, tax situation, and need for flexibility, with a financial advisor's help.
The main downside of a Roth conversion is the large, immediate tax bill, as the converted amount is added to your taxable income for the year, potentially pushing you into a higher tax bracket and increasing Medicare premiums or taxes on Social Security. Other drawbacks include using other funds to pay the tax (reducing investment growth), the irreversibility of the decision, and the potential for paying taxes at a higher rate than you would have otherwise if your income is currently high.