403(b) Rollover to IRA: The 2026 Guide for Teachers and Healthcare Workers

Many teachers, nurses, hospital administrators, and nonprofit employees retire with two separate retirement accounts: a defined-benefit pension and a 403(b) plan. The pension decision gets most of the attention — but the 403(b) rollover question has its own trap that costs early retirees thousands of dollars when they get it wrong.

1. Who has a 403(b)?

403(b) plans are offered by three categories of employers — all of which also commonly offer defined-benefit pensions:

• Public schools and universities — K–12 teachers in states with a state pension (CalSTRS, TRS-TX, NYSLRS, Illinois TRS, etc.) are frequently offered a supplemental 403(b). Many districts auto-enroll into both.
• Tax-exempt hospitals and health systems — nurses, physicians, and hospital administrators at Kaiser, HCA, Ascension, Mayo Clinic, and most regional hospital systems often have both a 403(b) and a legacy DB pension (some now frozen).
• Nonprofits and religious organizations — universities, charities, foundations, and churches. Church 403(b) plans have an additional layer of complexity: many are exempt from ERISA entirely.

If your employer is a tax-exempt organization under IRC § 501(c)(3), a public school, or a church, you likely have a 403(b). The rules below apply to all of them, with a church-plan footnote in section 5.

2. The 403(b) rollover options

When you separate from service, retire, or reach age 59½, your 403(b) qualifies as an eligible rollover distribution. You can roll it to:¹

• Traditional IRA — pre-tax 403(b) money rolls to a traditional IRA with no immediate tax. Growth continues tax-deferred; withdrawals are ordinary income.
• Roth IRA (conversion) — you can roll pre-tax 403(b) money directly to a Roth IRA, treating the full amount as taxable income in the year of conversion. Roth 403(b) balances (if you had after-tax contributions) roll to a Roth IRA tax-free.
• New employer's 401(k) or 403(b) — if your new employer's plan accepts incoming rollovers, a 403(b) can consolidate there. Useful if the new plan has institutional pricing or investment options you prefer.
• Governmental 457(b) — if you're moving to a state or local government employer that has a 457(b) plan, a 403(b) can roll into it. Unlike rolling to an IRA, this preserves the 457(b)'s no-penalty distribution right for the newly rolled funds (though it does not strip penalty exposure from those amounts — the prior 403(b) character follows them).

There are no income limits or phase-outs for 403(b) rollovers. Any balance can be rolled regardless of your income level.

3. The Rule of 55: the trap early retirees fall into

Under IRC § 72(t)(2)(A)(v), distributions from a 403(b) plan are exempt from the 10% early withdrawal penalty if you separate from service in or after the year you turn 55 — even if you're only 55, 56, or 58.²

This exception disappears permanently when you roll the 403(b) to an IRA. IRA withdrawals before age 59½ are subject to the 10% penalty with very limited exceptions (substantially equal periodic payments under 72(t), disability, death, and a handful of others). Simply being 55 and retired is not one of them.

The rule applies to the plan you separated from. If you left your hospital employer at 57, the Rule of 55 applies to that employer's 403(b). If you had a separate 403(b) from a prior employer you left at 52, the Rule of 55 does not apply to that plan — you were under 55 when you separated.

When rolling the 403(b) is still fine

If you have enough pension income, Social Security (once claimed), or other assets to cover spending until 59½ without touching the 403(b), the Rule of 55 exception doesn't matter to you. In that case, rolling to an IRA gives you greater investment flexibility and full Roth conversion optionality without giving anything up.

4. Coordinating your 403(b) with pension income

Pension income as the base layer

Your pension annuity creates a permanent income floor. This changes the 403(b) decision fundamentally: you don't need the 403(b) for monthly survival income — you need it for supplemental spending, large expenses, Roth conversions, and legacy. That context shifts the decision toward rolling to an IRA for maximum flexibility, unless you need penalty-free bridge income between 55 and 59½.

Roth conversion window

Many teachers and healthcare workers reach retirement with pension income that fills the lower brackets. If your pension puts you in the 22% bracket (2026: $47,150–$100,525 single, $94,300–$201,050 MFJ), there may be little room for Roth conversions without hitting the next bracket.³ Evaluate how much headroom you have before rolling and converting large sums.

On the other hand, if you retire early — say at 57 with a modest pension — there may be a window before Social Security begins where your taxable income is relatively low. Rolling a portion of the 403(b) to a Roth IRA during those lower-income years can save substantially on lifetime taxes.

IRMAA: Medicare surcharge management

Pension income, 403(b) distributions, and Roth conversions all count toward Modified Adjusted Gross Income (MAGI) for Medicare IRMAA purposes. For 2026, the first IRMAA tier begins at $109,000 single / $218,000 MFJ — adding $70.00/month to your Part B premium.⁴ Large 403(b) rollovers or conversions can inadvertently spike you into a higher IRMAA tier in that year. Spread large rollovers across multiple years and stay below the tier threshold where possible. See our Pension Income and IRMAA guide for the full 2026 bracket table.

RMD coordination

If you leave the 403(b) in the plan, it has its own RMD calculation beginning at age 73 (born 1951–1959) or 75 (born 1960+) under SECURE 2.0 § 107.⁵ Your pension annuity satisfies its own RMD automatically. Rolling the 403(b) to a traditional IRA aggregates it with any other IRAs you hold for RMD purposes — usually simpler to manage. A large 403(b) rolled to an IRA will eventually generate significant RMDs that compound pension income and could push you into higher brackets and IRMAA tiers in your 70s. Consider partial Roth conversions in the years between retirement and RMD age to reduce the eventual RMD burden.

5. The 403(b)-specific 15-year catch-up rule

Unlike 401(k) plans, 403(b) plans have a unique additional contribution feature for long-service employees: if you have 15 or more years of service with the same employer and your plan allows it, you may contribute an additional $3,000 per year beyond the regular deferral limit, up to a cumulative lifetime total of $15,000, reduced by any amounts previously used under this rule.⁶

This rule applies in addition to the age-based catch-up contributions ($8,000/year for ages 50+ in 2026; $11,250/year super catch-up for ages 60–63). A 62-year-old teacher with 15+ years at the same district who qualifies for the 15-year rule could potentially contribute $24,500 + $11,250 + up to $3,000 = $38,750 in 2026, subject to the plan allowing the 15-year feature and the cumulative lifetime cap. Most plans apply the 15-year amount first.

If you haven't retired yet and have 15+ years at the same employer, check with your plan administrator whether this feature is enabled — it's one of the most underused provisions in the 403(b) code.

6. Roth 403(b) rollover

If you've been contributing to a Roth 403(b) — available since 2006 and increasingly common in school district and hospital plans — you can roll the Roth 403(b) balance to a Roth IRA tax-free at any point after separation.¹

Key mechanics:

• No lifetime RMDs in a rolled Roth IRA. Starting in 2024, SECURE 2.0 § 325 eliminated lifetime RMDs for Roth 401(k) and Roth 403(b) accounts. Once your Roth 403(b) is rolled to a Roth IRA, there are no RMDs during your lifetime. This alone is often reason enough to roll the Roth 403(b) balance out of the plan.
• Five-year clock: The Roth IRA's own 5-year period governs tax-free earnings, not when you started your Roth 403(b). If you already have a Roth IRA open for 5+ years, the rolled Roth 403(b) earnings are immediately eligible for tax-free withdrawal at 59½.
• Basis tracking: Your Roth 403(b) consists entirely of after-tax contributions + earnings. All of it rolls to a Roth IRA tax-free. The plan should report the rollover on Form 1099-R with code H (direct rollover from Roth 403(b) to Roth IRA).

7. Executing the rollover: avoid the 20% withholding trap

The 20% mandatory withholding rule under IRC § 3405(c) applies to 403(b) plans just as it does to 401(k) plans. If the plan sends a check payable to you, federal law requires it to withhold 20% for income taxes. On a $250,000 403(b) balance, that's $50,000 withheld.¹

You would then have 60 days to deposit the full $250,000 — including the $50,000 you don't have in hand — into your IRA to avoid treating the withheld amount as a taxable distribution. If you deposit only $200,000, the $50,000 is fully taxable and subject to the 10% penalty if you're under 59½.

Always use a direct trustee-to-trustee transfer. Contact your IRA custodian first — they'll provide a receiving account number and specific transfer instructions. Give those to your 403(b) plan administrator. The funds go directly from the plan to the IRA; the check is never in your hands and no withholding occurs.

Church plan note

Church-sponsored 403(b) plans are exempt from ERISA under IRC § 414(e). This means they are not required to comply with ERISA's fiduciary rules, vesting schedules, or spousal consent provisions (though many voluntarily comply). The rollover rules under the tax code still apply — you can still roll a church 403(b) to an IRA — but the plan may have more restrictive distribution rules in the plan document itself. Read your summary plan description carefully.

Decision framework: should you roll your 403(b) to an IRA?