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Can a 403(b) be Converted to Roth?

Can a 403(b) be Converted to a Roth IRA?

A 403(b) plan (also called a tax-sheltered annuity or TSA plan) is a retirement plan offered by public schools and certain 501(c)(3) tax-exempt organizations. Generally, public schools, Code Section 501(c)(3) tax-exempt organizations or churches can set up a 403(b) plan.  The major advantage of participating in a 403(b) plan is that contributions are tax-deductible.

Key Points
  • 403(b) plans are generally offered by schools and certain tax-exempt organizations
  • You can convert 403(b) plans to Roth in most cases
  • Qualified Roth distributions are tax free

What Type of Contributions can be made to a 403(b) Plan?

A 403(b) plan may allow its participants to make the following type of contributions:

  • Elective deferrals – employee contributions made under a salary reduction agreement. The agreement allows an employer to withhold money from an employee’s salary and deposit it into a 403(b) account.  Employee elective contributions can be make in pretax or Roth (see below).  The maximum elective deferral amount for 2023 is $22,500 or $30,000 if age 50 or older.
  • Non-elective employer contributions – contributions other than those made under a salary reduction agreement that include matching contributions, discretionary contributions and certain mandatory contributions made by the employer. The plan participant would pay income tax on these contributions only when they are withdrawn.
  • After-tax contributions – An employee may make after-tax contributions to a 403(b) plan.  After-tax contributions are neither pretax or Roth.  There is very little reason for a plan participant to elect to make after-tax contributions to a 403(b) plan.
  • Designated Roth contributions – A plan participant may make elective deferrals that the employee elects to include in gross income. The plan must keep separate accounting records for all contributions, gains and losses in the designated Roth account. Roth contributions are not tax deductible.

Most 403(b) plans will offer Roth contribution options.  A plan participant can choose between pretax and Roth contributions so long as they do not exceed the annual contribution limit. The advantage of making Roth contributions is that so long as you are over the age of 59 1/2 and the Roth account has been opened at least five years, all Roth distributions will be tax free.

403(b) Roth Conversion

Most 403(b) plans that include a Roth provision will allow for in-plan Roth conversions.  When one converts pretax funds to Roth, the individual plan participant will be subject to ordinary income tax on the amount converted.  An in-plan Roth conversion can consist of cash or an in-kind asset, such as a mutual fund.  Taxes due are based on the fair market value of the asset on the date of conversion and not what the plan participant paid for it.

To elect to make a 403(b) Roth conversion, the plan participant would work with the plan administrator to complete the requisite paperwork.  The plan administrator would then report the conversion on IRS Form 1099-R.  The plan participant would then be required to report the converted amount on their IRS Form 1040.  The amount converted would be added to all other income for the year which would determine the amount of tax the plan participant owes.  A plan participant could reduce the impact of the conversion by offsetting the income with deductions, such as net operating losses or other deductions or credits.

Can a 403(b) Plan be Self-Directed?

Because a 403(b) plan can only be established by public schools and certain 501(c)(3) tax-exempt organizations, plan participants are generally restricted to make traditional investments, such as mutual funds or ETFs.  It is very rare that a 403(b) plan will allow a plan participant to make alternative investments, such as real estate.  A 403(b) plan participant that wishes to invest in alternative assets will generally need to wait until they reach the age of 59 1/2 or they terminate employment in order to do a tax-free rollover to a Self-Directed IRA.


In most instances, you can elect to make Roth contributions to your 403(b) plan. Assuming that’s the case, then a Roth conversion will also be allowed. Roths are arguably the best way to shelter future income from tax. Although you are limited in your investment options, the more you can accumulate the better off you will be when you are allowed to roll them over to a self-directed plan.


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