A transfer is the movement of all or some portion of a 403(b) account held under one plan to an account under another plan.
There are two types of tax-free transfers authorized for 403(b) accounts.
- Years of Service Purchase Transfers: Under IRC §403(b)(13), tax-free transfers of 403(b) values can be used to purchase years of service in state retirement system defined benefit plans. As long as the 403(b) plan language includes this transfer feature and the pension system accepts the tax free transfer to buy years of service, participants may use their 403(b) or governmental 457(b) account values to purchase service credits. You are no longer allowed to purchase “air time” or years of service credit for any time that service was not actually provided.
- Plan to Plan Transfers: After September 24, 2007, a “transfer” is a “plan-to-plan” transfer in which the participant is permitted to transfer all or some portion of a 403(b) account from the employer’s 403(b) plan to another 403(b) plan of the employer, or, following a severance of employment to a different employer’s 403(b) plan. (1.403(b)-10(b)(3) of the final regulations). It may also involve a transfer from the current employer’s plan to the former employer’s plan. In order to affect a plan-to-plan transfer, both the receiving plan and the transferring plan must include language that permits plan-to-plan transfers.
