Federal Tax Withholding 

Is there any federal tax withholding on a 403b rollover?

Whether there is a federal tax withholding on the 403b rollover or not depends on the type of 403b rollover as follows:

No federal tax withholding...

If the 403b rollover is a direct rollover from the custodian of the 403b plan to the IRA custodian, then there is no federal tax withholding. 

Federal tax withholding...

There is a 20% federal tax withholding if the distribution is eligible for 403b rollover and the check is made to the name of the employee or for the employee's benefit.

In order to avoid paying income tax on the 20% federal tax withholding, if desired, the employee must contribute that amount out-of-pocket to the IRA within the 60-day limit.

Can, and should, 403b rollover be commingled with IRA contribution assets?

Although 403b assets may be commingled with other IRA assets, and IRS rules allow IRA contribution money to be rolled into a 403b plan, 403b plans are not obligated to accept rollovers of IRA contribution money or even 403b money.

The 403b plan document determines whether the plan will accept rollovers of 403(b) or IRA contribution money.

An employee might want to roll the 403b assets back into another 403b to be in a position to have the ability to take loans from the 403b plan or have enhanced creditor protection that some states afford to 403b plans.

There are two other reasons why you may wish to leave 403b assets in a 403b plan, rather than being rolled over into an IRA:

1. An employee does not have to take required minimum distributions of pre-1987 403b assets (the plan should be checked for any alternate age).
2. A federal law called ERISA protects some 403b plans. Click here to read more about ERISA.

IRA assets are not ERISA - protected. However, some states' laws regarding IRAs might provide the same level or more limited protection to IRA assets.

ERISA provides, among other things, certain benefit anti-cutback and bonding rules.