403(b) to Roth IRA Conversion: The Complete 2026 Guide

Teachers. Nurses. Hospital administrators. Non-profit employees. If you spent your career in education, healthcare, or the non-profit sector, your retirement savings likely live in a 403(b) — not a 401(k). The Roth conversion math is identical, but the mechanics have three wrinkles specific to 403(b) plans that can cost real money if you move without checking them first.

Why convert a 403(b) to a Roth IRA?

A traditional 403(b) and a traditional IRA are taxed identically: contributions were pre-tax, the account compounds tax-deferred, and every withdrawal in retirement is ordinary income. If your future tax rate on those withdrawals — pushed up by required minimum distributions — will be higher than your rate today, converting now locks in the lower rate.

For a recently retired teacher or nurse in the Roth conversion golden window — the years between leaving full-time work and when RMDs begin — this window can run 10 to 15 years and represent hundreds of thousands of dollars in lifetime tax savings. The 2026 rules favor conversions particularly for the 1960-and-later cohort, whose RMD age under SECURE 2.0 § 107 is 75, not 73.¹

If you were born in 1960 or later and retire at 63, you have a 12-year window to convert at low rates before the first forced withdrawal. That's a long runway — and 403(b) holders in education and healthcare often have it, because many in those fields retire before 65.

The rollover path: direct vs. indirect (and the 20% withholding trap)

To convert a 403(b) to a Roth IRA, you roll the 403(b) balance out to a Roth IRA at a custodian of your choice. There are two ways to do this. One of them is expensive.

To request a direct rollover: open a Roth IRA at your target custodian (Fidelity, Vanguard, Schwab, or your current 403(b) provider if they also offer Roth IRAs), then contact your 403(b) plan and request a "direct rollover to Roth IRA." The plan will ask for your Roth IRA account number and custodian's address, then wire or send the funds directly.

403(b) complication #1: annuity contracts and surrender charges

This is the most common surprise for 403(b) holders — and it doesn't exist with 401(k) plans. Many 403(b) accounts, particularly older ones, are held inside annuity contracts issued by insurance companies. TIAA, Equitable, Nationwide, AXA, Voya, and Lincoln are common in education and healthcare. Before you can roll the money out, you need to check whether you're still inside the surrender period.

A typical 403(b) annuity contract has a surrender period of 6 to 8 years, with a surrender charge that starts around 6–7% and decreases by roughly 1% per year until it reaches zero.³ Rolling out before the surrender period ends means the insurance company deducts the charge from your balance before transferring it.

Before initiating a rollout, call your 403(b) plan provider and ask:

• Is my account held in an annuity contract or a 403(b)(7) custodial account?
• What is the current surrender charge percentage, if any?
• When does the surrender period end?
• Does my contract have a free-withdrawal provision, and how much can I move per year without charge?

Many contracts allow a free withdrawal of 10–15% of the account value per year without surrender penalty. You may be able to start rolling out this free portion and converting it annually while waiting for the rest of the surrender period to expire.

If your 403(b) is a 403(b)(7) custodial account — a mutual fund account administered under the 403(b) rules, common at Fidelity, Vanguard, and some credit union plans — there are typically no surrender charges. The custodial structure behaves more like a 401(k) in terms of rollout flexibility.

403(b) complication #2: in-service distribution restrictions

If you are still working, getting money out of a 403(b) before retirement is harder than with many 401(k) plans. The general rule: in-service distributions from a 403(b) require either age 59½ or a specific plan provision allowing early access.⁴

Before age 59½, common triggering events that allow a distribution are: separation from service, plan termination, disability, death, or hardship (with restrictions). Not all plans permit in-service distributions even at 59½ — it depends on the plan document. Check with your HR department or plan administrator before assuming you can access the account while still employed.

If you're still working and want to begin conversions before 59½, your options are:

• In-plan Roth 403(b) conversion — if your plan offers a designated Roth 403(b) option, you may be able to convert inside the plan without a distribution. No age restriction. See the in-plan section below.
• Wait until 59½ — if your plan allows in-service distributions at 59½, you can then do partial rollovers to a Roth IRA and convert.
• Separate from service — once you leave your employer, the full balance is distributable (subject to surrender charges, if applicable) at any age.

403(b) complication #3: pre-1987 grandfathered balances

This applies to a narrowing group — 403(b) participants who had balances before December 31, 1986 — but if it applies to you, it's worth knowing. Under IRS rules, amounts in a 403(b) attributable to contributions made before 1987 are not subject to the age-73 RMD rules. Those pre-1987 dollars can remain in the plan until age 75 (or actual retirement if later), provided the plan separately tracks them.⁵

What this means for conversion strategy: the pre-1987 tranche gives you a slightly longer window before that portion forces a distribution. If you're weighing partial rollouts — leaving some balance in the plan — understanding which dollars are grandfathered helps you sequence correctly.

One nuance: if you roll the entire 403(b) into a Roth IRA, the grandfathered treatment disappears. The Roth IRA itself has no lifetime RMD requirement, which is generally a better outcome than having a portion of a 403(b) that can defer until 75. But it's a factor to confirm with your plan administrator before deciding between full and partial rollouts.

The pro-rata advantage — employer plans are excluded

The pro-rata rule forces anyone with pre-tax and after-tax money mixed in their IRAs to recognize a proportional share of the total pre-tax balance on every conversion. For someone with a large traditional IRA and a small after-tax basis, this can make even a modest conversion very expensive.

The good news: 403(b) balances do not count in the pro-rata calculation. Only traditional IRAs, rollover IRAs, SEP IRAs, and SIMPLE IRAs are aggregated under IRC § 408(d)(2). Employer-sponsored plans — 401(k), 403(b), governmental 457(b) — are excluded from the denominator entirely.⁶

This creates two strategies:

1. Convert the 403(b) first, then deal with the IRA. 403(b)-to-Roth conversions are unaffected by any IRA basis. You pay tax only on the 403(b) dollars being converted, not a blended rate across all pre-tax accounts.
2. Roll pre-tax IRA funds into the 403(b). If your plan accepts incoming rollovers, you can move your traditional IRA's pre-tax balance into the 403(b) to clear the IRA of pre-tax dollars. Any remaining after-tax basis in the IRA can then be converted to Roth tax-free. This is the same "reverse rollover" strategy described in our pro-rata rule guide.

In-plan Roth 403(b) conversion

Some 403(b) plans offer a designated Roth 403(b) account. If yours does, you may be able to do an in-plan Roth conversion — moving pre-tax 403(b) balances to the Roth 403(b) without distributing the money or rolling it anywhere. The converted amount is taxable as ordinary income in the year of conversion, same as any other Roth conversion.

Advantages of the in-plan route:

• No rollout required — simplifies the paperwork
• No surrender charge risk on annuity contracts (you're not exiting the contract)
• Can be done while still employed, with no age restriction
• Same tax treatment as a rollout-then-convert

One consideration: the Roth 403(b) account stays inside the employer plan. Once you leave employment, most people roll it into a Roth IRA to consolidate accounts and gain full investment flexibility. As of 2024, Roth 403(b) accounts (like Roth 401(k)s) have no lifetime RMD requirement under SECURE 2.0 § 325 — so leaving it in-plan after retirement no longer triggers forced distributions.¹ Still, the broader investment options and simplicity of a Roth IRA make the post-employment rollover the standard move.

Worked example: Carol, age 63, hospital RN

Carol retired from full-time nursing at 63 after 30 years at a large hospital system. Her 403(b) is a 403(b)(7) custodial account held at Fidelity — no annuity contract, no surrender charges. Balance: $595,000.

Her situation:

• Born in 1963 → RMD age 75 under SECURE 2.0 (12-year golden window, ages 63–75)¹
• Other income: $0 — fully retired, delaying Social Security until 70
• No pension
• Filing single; 2026 standard deduction $16,100⁷
• No traditional IRA — all retirement savings are in the 403(b), so no pro-rata complication

Her annual conversion ceiling:

With no other income, Carol's taxable income equals her conversion amount minus the $16,100 standard deduction. She can convert up to roughly $106,000/year — the approximate 2026 IRMAA Tier 1 threshold for single filers (see our IRMAA guide for exact tiers) — without triggering Medicare surcharges on premiums two years later.

At a $100,000 annual conversion:

• Taxable income: $100,000 − $16,100 standard deduction = $83,900
• Federal tax: ~$13,400 (blended across 10%, 12%, and 22% brackets — she never enters 24%)⁷
• Effective federal rate on the full $100,000 conversion: ≈13.4%

The comparison: If Carol does nothing, her $595,000 grows to roughly $1.2M by age 75 (at 6% annual growth), generating a first-year RMD of approximately $48,000. That $48,000, stacked on top of Social Security income starting at 70, will be taxed at 22%+ — and the RMDs only grow from there.

Converting $100,000/year from age 63, Carol depletes the full $595,000 account in approximately 8 years (the balance grows during the conversion period; total dollars converted across years 1–8 is roughly $875,000). She finishes converting at 71, with 4 years still in the golden window and a near-zero RMD balance at 75. The blended effective federal rate on those conversions: approximately 13–14%.

The lifetime tax savings versus paying 22–24% on forced RMDs: $75,000–$120,000+ in federal tax alone, depending on portfolio growth and Social Security timing. For a married couple with two 403(b)s, the math scales proportionally.

Common mistakes 403(b) holders make

1. Taking the indirect rollover and triggering 20% withholding. Always request a direct rollover. Never let the plan cut a check to you.
2. Rolling out during the annuity surrender period. A 4–6% surrender charge on a $500,000 account is $20,000–$30,000 gone before income taxes on the conversion. Confirm the surrender status first.
3. Assuming in-service distributions are allowed. Some 403(b) plans don't permit in-service distributions even at 59½. Call the plan administrator before assuming access while still employed.
4. Missing the IRMAA two-year lookback. A large one-time conversion in the year of retirement can trigger Medicare Part B and D surcharges two years later. Spreading conversions over multiple years typically avoids tier crossings. See our IRMAA guide.
5. Ignoring the pro-rata opportunity. If you have after-tax dollars sitting in a traditional IRA, rolling the IRA's pre-tax balance into the 403(b) first (if the plan accepts it) clears the way for a near-tax-free conversion of the after-tax IRA basis to Roth.
6. Converting in the wrong order when also taking RMDs. If you're already subject to RMDs (age 73+), the RMD must come out first — you cannot convert the RMD amount. A QCD can satisfy up to $111,000 of RMD income tax-free if donated to charity, reducing your taxable income before you size additional conversions.⁸