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As I understand it, then, I wouldn't incur the early withdrawal penalty so long as I put the disbursement from the 403(b) into an IRA within 60 days; my current salary, however, is higher than the cutoff for the traditional IRA, so I would have to go to a Roth IRA.

You'd better arrange a direct transfer of the 403-b assets to the IRA custodian rather than taking them into your possession and within 60 days opening the IRA yourself. Reason: if you take the money yourself, there will be mandatory withholding (20%) by your 403-b custodian and you will not see this money again until you file your return next year. In the meanwhile you have to transfer the whole value of your 403-b account into the IRA (you'll have to come up with the 20% withheld yourself) or face the 10% penalty for early distribution on the transfer amount shortfall.

Secondly, there is NO salary level cutoff for a rollover into a Traditional IRA; this is only relevant for new contributions. You can rollover any amount regardless of current income.

Also, my current employer is not matching contributions to my 401(k) yet, so I was planning on contributing to a Roth this year; would the rollover affect my ability to contribute?


Also, I assume that I would have to pay taxes on the Roth rollover, since otherwise I would be getting
tax-exempt pre-tax savings; would this be at the rate I should have paid when I was contributing to the 403(b), or the rate I pay now?

If you were to rollover into a Roth (it would have to go from the 403-b to a tradional or conduit IRA and then to a Roth), the taxation would be based on your current tax situation.

And, finally, what advantage would I be gaining from rolling over to an IRA in the first place? I anticipate my salary increasing enough before retirement to make the change from tax-deferred to tax-exempt post-tax savings worth it, but in terms of accessibility of funds, etc., is there any reason to switch? (That is, did the person who originally told me to roll the funds over to an IRA, not knowing that I would have to go to a Roth, know what they were talking about?)

You don't have to go to a Roth unless you feel that the tax-exempt distributions in retirement would be better than tax-deferred, but you may want to transfer into a traditional IRA and convert to a Roth incrementally (if your AGI permits it), to reduce the tax hit on the conversion, if the amount is large enough. Trannsferring out of the 403-b would give you more investment options, but if the custodian allows you to keep your assets there and you're happy with the investment options and performance, you don't have to rollover into an IRA at all. Leaving the money would preseve a borrowing option not available with an IRA.

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