How to Transfer a 403b to an Annuity
Jason Stolz CLTC, CRPC
How to Transfer a 403b to an Annuity is one of the most common questions for teachers, healthcare professionals, and nonprofit employees planning their retirement. A properly executed trustee-to-trustee transfer or direct rollover allows you to move funds from your 403(b) plan into an annuity without triggering taxes or early withdrawal penalties. This guide outlines each step of the process, IRS compliance rules, and how an annuity can help turn your accumulated savings into predictable lifetime income.
At Diversified Insurance Brokers, our advisors assist clients nationwide in rolling over their 403(b) assets into fixed or indexed annuities that offer growth, safety, and guaranteed income. We help ensure your funds remain qualified, your tax advantages stay intact, and your income is secured for the years ahead.
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Why Transfer a 403b to an Annuity?
A 403(b) plan is an excellent way to save for retirement, but it may offer limited income options and investment control after you retire. Rolling it into an annuity allows you to secure income for life and reduce exposure to future market declines.
- Guaranteed income: Turn savings into a reliable monthly payment for life.
- Principal protection: Fixed or indexed annuities shield your account from market downturns.
- Tax-deferred growth: Continue compounding earnings without current taxation.
- Flexible beneficiary designations: Name your heirs directly for faster asset transfer.
- Optional riders: Add lifetime income, enhanced withdrawal, or long-term care features for added security.
How the 403(b)-to-Annuity Transfer Works
The IRS allows you to move your 403(b) balance into a qualified annuity without paying taxes—provided the funds move directly from one custodian to another. Here’s how the process typically unfolds:
| Step | Action | Result |
|---|---|---|
| 1. Contact your plan administrator | Request a distribution or rollover form and specify a direct trustee-to-trustee transfer. | Keeps funds qualified and avoids IRS penalties or withholding. |
| 2. Select your annuity | Choose a fixed, fixed indexed, or income annuity based on your risk tolerance and retirement goals. | Aligns payout strategy with your income needs. |
| 3. Complete rollover paperwork | Your advisor and the annuity company coordinate with your plan provider to process the transfer. | Ensures accuracy and prevents tax reporting issues. |
| 4. Contract funded and issued | The insurer receives funds and begins crediting guaranteed interest or indexed growth. | Your annuity begins compounding immediately. |
Estimate Lifetime Income from Your 403(b)
Tax Rules for 403(b) Transfers
A 403(b)-to-annuity rollover is tax-free as long as it’s handled as a trustee-to-trustee transfer. The IRS only considers a rollover taxable if you receive the funds personally. If you take a check in your name, 20% withholding and possible early withdrawal penalties will apply unless redeposited within 60 days.
To preserve your tax-deferred status, always have the new annuity carrier initiate the transfer request directly with your 403(b) custodian.
Benefits of Converting a 403(b) to an Annuity
- Predictable retirement income: Convert savings into guaranteed monthly income.
- Diversification: Shift from variable investment risk to stable annuity growth and protection.
- RMD flexibility: Many annuities can automatically satisfy Required Minimum Distributions (RMDs).
- Legacy protection: Choose beneficiary options that keep your wealth in the family.
- Long-term security: Combine market protection with competitive fixed or indexed returns.
For comparison, see How to Transfer a 401(k) to an Annuity.
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FAQs: Transferring a 403(b) to an Annuity
Is transferring a 403(b) to an annuity taxable?
No. As long as the funds move directly between custodians as a trustee-to-trustee transfer, the process is tax-free and penalty-free.
Can I transfer my 403(b) while still employed?
In most cases, transfers are allowed only after separation from service or reaching age 59½. Some employers may allow in-service rollovers—check your plan’s rules.
What kind of annuity can receive a 403(b) transfer?
Fixed, indexed, and immediate income annuities can all accept 403(b) rollovers, provided they are qualified contracts.
Can I transfer part of my 403(b) to an annuity?
Yes. Partial rollovers are common for those who want guaranteed income with continued market exposure on the remaining balance.
What are the advantages of rolling over a 403(b) into an annuity?
Annuities provide guaranteed income, protect against market losses, and offer more flexibility with beneficiaries than most employer plans.
Are Roth 403(b) accounts treated differently?
Yes. Roth 403(b) balances must transfer into a Roth-designated annuity to maintain their tax-free status on qualified withdrawals.
