The IRS says that you can roll a 403(b) plan into a 401(k) plan if you now work for an employer that offers a 401(k). You can also roll a 403(b) plan into a solo or independent 401(k) plan if you are self-employed.

However, if you work for an employer that does not offer a 401(k) plan, then you cannot roll a 403(b) plan into any type of 401(k) plan. If your employer offers a SEP plan or 457 plan, then you can also roll a 403(b) plan into one of those.

It also works the other way: If you had a 401(k) at the old job, and the new employer only offers a 403(b), you can roll over part or all of those funds  too.

Of course, you can always roll a 403(b) or other qualified plan offered by a previous employer into a traditional or Roth IRA. Current rules allow you to then roll that money over into a 401(k) plan if you are hired by an employer that offers this plan in the future, as long as the money from the 403(b) plan has not been commingled with contributory funds that you deposited into the IRA.

One caveat: While the IRS regulations allow rollovers of assets between 401(k) plans and 403(b) plans, employers are not required to allow rollovers into the plans they maintain. Whichever transfer you're thinking of, your employer must permit it. Happily, most employers do; the more assets in their plans, the better, is their general thinking.

Rollover Details

Rollovers into a traditional IRA or non-Roth retirement plan are generally tax free. Funds can go into a Roth IRA by direct rollover, subject to income tax but not the early withdrawal penalty.

Required minimum distributions (RMD), hardship distributions, corrective distributions and any payments spread over the plan participant's life, or 10 years, are not eligible to be rolled over.

If the 403(b) account has both pre-tax and after-tax contributions in it, a distribution is considered to come from the pre-tax money, contributions and taxable earnings first. Any nontaxable portion of the distribution, including after-tax contributions, can be rolled into a traditional or Roth IRA or to another eligible plan that accounts separately for taxable and nontaxable contributions.

For example, Bill's 403(b) consists solely of pre-tax contributions and earnings. Bill can request a direct rollover of some or all of the account into a traditional IRA, a 401(k), another 403(b) or a government-eligible 457 plan with no tax consequences. The transaction does have to be reported on his next income tax return. If he rolls it into a Roth IRA, the distribution will be taxable income.

Direct rollovers, trustee to trustee, are not subject to withholding. Indirect rollovers, where a check is distributed to the plan participant, are subject to 20% withholding. For an indirect rollover to remain completely untaxed, the participant has to make up the withheld amount.

For example, Bill has decided to request an indirect rollover of $10,000 from his 403(b). His plan trustee withholds 20%. Bill gets a check for $8,000. He has to come up with $2,000 from other sources, or his rollover will only be $8,000. The $2,000 will be taxable income to him, subject to an early distribution penalty if Bill is under age 59½.