Moving your 403(b), 457(b), TSP, or pension lump sum — safely

If you have separated from service with the employer that sponsors the plan, you almost always have rollover rights. If you are still employed, the rollover question depends on whether your plan allows in-service distributions, and at what age. Many 401(k) plans allow in-service rollovers at age 59½, but plan provisions vary widely. Call the plan administrator, ask the question explicitly, and get the answer in writing.

Plans subject to ERISA — most private-sector 401(k) and 403(b) plans — also have spousal-consent rules in certain situations. If you are married, the plan may require notarized spousal consent for distributions or rollovers, depending on the plan type and distribution form. The plan administrator will tell you what is required.

Pension lump sums, governmental 457(b) plans, 403(b) plans, and the federal Thrift Savings Plan each have their own rules. Don't assume what is true for one is true for another.

A direct rollover (also called a trustee-to-trustee transfer) is the cleanest path: the old plan sends funds directly to the new IRA custodian. There is no withholding and no 60-day clock. You receive a 1099-R coded with distribution code G (direct rollover), and the rollover is non-taxable when reported correctly.

An indirect rollover means the check is made out to you. Two big problems: the plan must withhold 20% for federal tax on a distribution from an employer plan (this is a statutory requirement under IRC §3405(c)), and you have only 60 days from receipt to deposit the full original amount — including the 20% the plan withheld — into the new IRA. If you only deposit what you received, the withheld 20% is treated as a taxable distribution.

Direct rollover is almost always the right move. Indirect rollovers exist as an option, not as a recommendation.

Under IRC §408(d)(3)(B), as clarified by the Bobrow Tax Court decision and IRS Announcement 2014-32, you may complete only one indirect 60-day IRA-to-IRA rollover per 12-month period across all of your IRAs.

Direct trustee-to-trustee transfers do not count against the one-per-year limit. Rollovers from an employer plan to an IRA do not count against it either. The limit applies specifically to 60-day indirect IRA-to-IRA rollovers. This is another reason to use direct transfers whenever possible.

Open a fixed IRA-structured annuity contract (MYGA, FIA, or other fixed annuity) with the carrier you have chosen. The contract is titled as an IRA — Traditional, Roth, SEP, or SIMPLE — so the rollover preserves its tax-deferred (or tax-free, for Roth) status. The annuity is the funding vehicle inside the IRA wrapper.

Pebyl Financial only places qualified funds into fixed insurance contracts. We do not move qualified funds into variable annuities, mutual funds, brokerage accounts, or any securities product, and we are not licensed to do so.

The receiving carrier provides transfer paperwork — typically a transfer/exchange form, the new application, and any spousal-consent forms required by the source plan or by state law. The carrier sends the request to the source plan; the source plan issues the check or wire payable to the new carrier FBO ("for benefit of") your IRA.

Timing varies. ACH and wire transfers can complete in days; paper checks from large recordkeepers often take two to four weeks. Track it actively — neither side will call you if it stalls.

Moving Traditional pre-tax dollars into a Roth IRA is a Roth conversion, not a tax-free rollover. The converted amount is added to your taxable income for the year and taxed as ordinary income. Conversions cannot be undone — the recharacterization of conversions was eliminated by the Tax Cuts and Jobs Act of 2017.

If you are rolling pre-tax 401(k) dollars to a pre-tax (Traditional) IRA, the rollover is non-taxable. If you are converting along the way, plan the tax bill before you start.

NUA (Net Unrealized Appreciation): If your 401(k) holds employer stock with significant appreciation, you may be able to take a lump-sum distribution that allows the appreciation to be taxed at long-term capital gains rates rather than ordinary income, under IRC §402(e)(4). Once you roll the stock into an IRA, the NUA opportunity is gone. This deserves a CPA conversation before you roll.

Rule of 55: Distributions from an employer plan after separation from service in or after the year you turn 55 are exempt from the 10% early withdrawal penalty under IRC §72(t)(2)(A)(v). This rule does not apply to IRAs. If you are 55-59½ and may need penalty-free access, rolling to an IRA can cost you the rule.

Plan loans, certain creditor protections under ERISA, and uniformed services special rules are also plan-specific. ERISA-plan creditor protection is generally stronger than IRA creditor protection, which depends on state law and the federal bankruptcy cap.

Required Minimum Distributions still apply at the applicable age (currently 73 under SECURE Act 2.0, rising to 75 in 2033) on Traditional IRAs and on most other pre-tax retirement accounts. Rolling into an annuity inside an IRA does not eliminate RMDs.

Confirm that the funds were credited to the new contract correctly and that the source plan reports the distribution with the proper rollover code on the 1099-R. Mismatched coding is the most common cause of an avoidable tax notice the following spring.