I’ve been reading about the merits of IRA vs 403b for a while and still cannot make sense of it.
My situation: currently age 37, have a Fidelity 401k from a previous employer, and have recently begun work for a university that offers a 403b (although I believe I have some option to do IRA instead, but am not sure how that works.) My 401k has about $101,000 in it right now.
My new employer will give up to 3% match if I put in 3% of my salary, and already automatically also puts in another 3% of my salary into a 403b regardless of anything that I do or don’t do. So if I contribute 3% of my salary, I will get a total of 9% equivalent of my salary going into my 403b every year.
So……is the best option, at my age, to just roll over the entire $101,000 from my 401k into this new 403b, or should I do a simultaneous 403b and a separate IRA? I would really appreciate any advice from Dopers who can cut through the fog and explain it in dumb layman terms. From what I understand, I could roll the entire $101,000 over to a 403b tax-free and penalty-free, but it may not be that simple with an IRA.
In my experience corporate plans are inferior to self managed. You’re best off rolling your 401k into an IRA and investing carefully.
The 403b is still pre-tax I hope? But ensure you at least take advantage of the offer to get their full match. Free money is great.
Right now the market is still do well, but future chaos seems likely, so look for stocks with high dividend yields and a stable history of such. Try to minimize gambles. Buying into SPY with part of the 100,000 is still a good idea.
You should be able to roll the entire 401k into an IRA just as easily, both tax and penalty free. The key is to have a trustee to trustee transfer, without ever touching the funds yourself.
Another vote for putting it in an IRA. At 37, you have about 22 years until you can normally access the money. I would bet that the fee structure in the 403b is higher than you would pay with index funds in the IRA. Over 22 years the higher fees will take a bite out of your $101,000. While there isn’t much you can do about the 403b fees for new money going in, there is no reason to subject the $101,00 to a higher fee if there is a lower fee alternative like the IRA.
Fidelity’s customer service is the best in the business, so if you call them they will walk you through the process. It’s generally very easy, though I have seen where some custodians (those who currently hold the money) make it difficult because they are greedy jerks.
Once you’re into the IRA, just put it in one or two broad index funds and forget it exists.
I’ve been getting about 14% return per year in my University-managed 403b (TIAA-CREF) for the last 10 years or so. I don’t think I could have done that by investing it myself. The TIAA-CREF fees are pretty low (TIAA-CREF is designed for education workers, and I bet that’s what the OP is being offered).
I am required to contribute 5% (pre-tax) and the University contributes another ~10% on top of that. I’ve been pretty satisfied.
One difference to keep in mind with a 403b vs a 401k os that you can’t do a back-door Roth with a 403b.
You should not be thinking of the 403b & IRA as either/or. You should be doing both. For sure put 3% of salary into the 403b to collect on their offer of a 3% match. And fund your IRA to the annual maximum, which is $7,000 in 2025. And save as much more as you can stand into the 403b.
It may be possible to roll the existing 401k into the 403b. But unlikely. It’s a transaction allowed for in law, but optional for the fund managers to provide. Many/most suppliers of 403b/401k plans don’t do rollovers into their plans. They all do rollovers out of their plans; that’s required by law.
So if the 401k has crappy investment choices, and/or high fees, and/or you want to simplify your financial life, roll the 401k into your IRA. That’s a no-tax transaction if you have the one entity send the money directly to the other, not passing through your hands. Talk to whoever holds your IRA to get started on that.
That’s not been my experience. I’ve worked with both 401k and 403b (and 401a) plans on the advisor side on 3 different platforms, and there is strong pressure from the broker-dealer to get rollovers into these plans from previous employers, simply because the fees tend to be higher. As an advisor, I nearly always suggested an IRA due to both lower fees and better investment options.
One of the only real reasons to roll your 401k into your 403b would be to shelter the funds from any future judgments (I.e. if you get sued) as ERISA plans offer a bit more protection than an IRA. I do not think this outweighs the benefits of an IRA.
You obviously are the pro here, not me. And as such have a much wider experience base than I.
I do know that the two times I considered rolling an old 401k into a fresh one at a new employer, the answer was “no can do”. So I rolled them into my IRA instead.
Upon my final retirement a couple years ago I rolled the 401ks into my IRAs (one Roth, one not), and that’s the end of my personal involvement in 401k.
I’m certainly no pro. But your experience is odd - when I started my new job, the advisor attached to the 401k called a week I was eligible to start contributing to get me to rollover. With 0.80% fees, I let him know I wasn’t super eager to do so.
One other reason to possibly consider the 403b is that many are technically in an annuity wrapper, and thus will have a death benefit option as well as fixed interest investment option. For extremely conservative investors, this may be desirable.
I think employers would want to encourage people to rollover previous 401(k)/403(b) accounts into their plan, simply because it means a larger amount under management, which lowers expenses.
As others have said, it is extremely simple to rollover a 401k into an IRA. Note that you need to set up a Rollover IRA, which is separate from a standard IRA. But if you rollover into a large bank (like Fidelity) it almost certainly gives you many more investment options, as managed as you like, than your new employer’s 403b. I set up a rollover IRA 30+ years ago and have rolled over 6 401ks into it with zero difficulty.
The other posters have nailed the pros/cons of rolling over into your new corporate plan v. a stand-alone IRA.
One thing that only seemed to be alluded to but not stated outright is whether this is Roth (post-tax) or pre-tax money. That will determine what type of IRA it goes into. There may be benefits to one or the other going forward (some combination of pre-tax 403b plus Roth IRA could be a useful diversifier in retirement to have some taxable and some tax-free money to draw from).
The other option I didn’t see mentioned is just leaving your current 401k where it is. My 401k from my only significant employer is still in their plan even though I stopped working there years ago. Rolling it into an IRA didn’t make sense for me because the options and costs in the employer-sponsored plan are basically the same as at Fidelity or Vanguard for a stand-alone plan.
That’s going to depend a lot on who manages the plan for your university. In my experience – as mentioned by others – Fidelity, the manager of the 403b plan at the university I retired from, has been outstanding in their fund choices, very low fees, and customer service. I have also heard good things about TIAA CREF.
IMO, the OP should seriously consider rolling his 401k fund into an IRA at Fidelity, just to establish a relationship with them. Another reason to have money in an IRA vs a 401k or 403b is that you can use an IRA to make QCDs (Qualified Charitable Donations) and reduce your taxable income when you start having to take RMDs (Required Minimum Distributions) after you retire.
that article is not particularly well written, but read it again. It sort of assumes you will, but nowhere does say you need to open a rollover IRA to rollover a 401k. There is no issue with rolling it over to an existing traditional IRA. If you don’t have an existing IRA, you will indeed need to open a rollover IRA to do the rollover of course.
Yes, you can but it’s important to be aware that if you do roll pre-tax 401(k) funds into a traditional IRA, you may not be able to roll those funds back into an employer-sponsored retirement plan. Contact your tax advisor for more information.“