Should I roll over my 403(b) into a Roth IRA?

[Guest LoreleiJ]

I just quit teaching to enter the business world. I had a 403(B) plan in the State Teachers Retirement System (STRS) in California. I am considering rolling approximately $15K into a Roth IRA, and have a few questions:

1. Should I roll the amount over, or leave it where it is?

I never plan to return to teaching.

2. Should I put it into a Roth or something else?

3. How do I go about making this type of transaction?

Please help.

[Michael Devault]

I suggest that you check with your financial or tax advisor to determine whether or not conversion to a Roth IRA is best for your situation.

However, if you do decide to convert, you first must roll your distribution from STRS into a traditional IRA. This rollover will not cause a taxable event. Then, if you wish and meet the eligibility requirements, you may convert all or a part of your traditional IRA to a Roth IRA. You will have to pay tax on the amount converted, but it grows income tax free once into the Roth.

Eligibility to convert to a Roth IRA is based on your modified Adjusted Gross Income, which must be less than $100,000 in the year of conversion.

Hope this helps. Best of luck to you.

[John G]

The 100k is only for married tax payers filing joint returns. If you are married filing separate the income threshold drops down to 10k I believe. Strange rule, it knocks out virtually all married filing separately and hurts anyone going through a divorce or separation.

[Carol V. Calhoun]

It is pretty common, though, for married filing separately to be subject to less favorable rules than married filing jointly. Congress tends to be suspicious of married filing separately situations, on the theory that the parties may be channeling income to the lower income spouse in order to minimize taxes.

Of course, once the divorce is final, the parties can file as single or head of household. But you are right that this often poses a problem for people who are in fact separated, but are not yet legally divorced and do not have a decree of legal separation. ("Legal separation" is a technical term, and many people who are not living together and even have court-approved separation agreements are not treated as "legally separated.")