Next Wave Options
Independent life insurance and retirement income agency serving Salinas and Monterey County.
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Independent life insurance and retirement income agency serving Salinas and Monterey County.
Get a quote
A 403(b) is the retirement savings plan offered by public school districts, colleges and many nonprofits, including hospitals. In Monterey County that means teachers and classified staff at Salinas Union, Alisal, Monterey Peninsula and the other districts, Hartnell College employees, and staff at nonprofit hospitals. It sits alongside a CalSTRS or CalPERS pension, and it follows rules that are close to a 401(k)'s but not identical, with one trap of its own: many 403(b) accounts are annuity contracts with surrender charges that a rollover can trigger.
Next Wave Options is an independent, insurance-licensed agency in Salinas. We explain 403(b) options neutrally. We are not affiliated with CalSTRS, CalPERS or any school district, and we never suggest leaving a public plan.
The IRS describes 403(b) plans on its 403(b) tax-sheltered annuity plans page and the rollover rules on its rollovers page. In plain terms:
| Option | What you keep | What to check |
|---|---|---|
| Leave it with the current vendor | Tax deferral; the contract's terms; no surrender charge triggered | Fees and whether the vendor still services accounts of former employees |
| Transfer it to a new employer's plan (403(b), 401(k) or governmental 457(b), if accepted) | Tax deferral; one account; plan protections | Whether the old contract charges a surrender fee on the way out |
| Roll it into an IRA | Tax deferral when done as a direct rollover; wider product choice | Surrender charges; loss of the plan's age-55 separation exception; different creditor protection |
| Take the cash | Nothing | Income tax, 20 percent mandatory withholding, and the additional 10 percent tax if you are under 59½ unless an exception applies |
Historically, 403(b) money was invested through annuity contracts, which is why the IRS still calls them tax-sheltered annuity plans, and many teachers' accounts are still fixed or variable annuity contracts sold years ago. Those contracts often carry surrender charges that run for years from each contribution and are separate from anything the IRS does. Rolling the account to an IRA or another plan is not a taxable event, but it can trigger the contract's surrender charge, sometimes a meaningful percentage of the balance. Before moving a 403(b), get the contract's surrender schedule in writing from the vendor. Sometimes the answer is to wait out the schedule, to move only the portion that is past it, or to leave the account where it is. We will read the schedule with you and tell you which.
Ask for a direct rollover so nothing is withheld and no 60-day clock runs. Once 403(b) money is in an IRA it follows IRA rules: the exception that allows penalty-free withdrawals from a plan after leaving the employer at 55 or later no longer applies, creditor protection becomes a matter of state rather than federal law, and the once-per-12-months rule governs any later IRA-to-IRA 60-day rollovers. A qualified rollover is tax-deferred, not tax-free; income tax is due when the money is withdrawn, and required minimum distributions start at the IRS age. Our 401(k) rollover options page walks through these mechanics in detail; they apply here with the surrender-charge caveat above.
A teacher's CalSTRS pension, or a classified employee's CalPERS pension, is a defined benefit that pays monthly for life under the system's own rules; it generally cannot be rolled over and it is not something we advise on beyond helping you read the options. The 403(b) is the account you control, and the useful question is how its income fits around the pension and Social Security, which for many California educators is reduced or absent because of how their public employment interacts with federal rules. That is an income planning question, and it is where an annuity might, or might not, have a role: turning part of a 403(b) into income for life comes with surrender charges, withdrawal limits and, for indexed contracts, caps, and it is rarely the right use of the whole balance.
CalSTRS runs its own low-cost 403(b) and 457(b) program, Pension2, and the state maintains 403bCompare, a registry where every vendor approved to sell 403(b) products to California school employees must list its products and fees. Both are worth reading before any decision, including one with us. Our CalSTRS and 403(b) and district 403(b) vendor pages go deeper.
Next Wave Options is not affiliated with CalSTRS, CalPERS, 403bCompare or any school district. We explain options; we never suggest leaving a public plan.
One more thing worth knowing before you move anything. Some districts allow you to keep contributing to a 403(b) with a new vendor while an old contract sits untouched until its surrender schedule runs out. That split approach is often the cheapest way out of an expensive contract, and it costs nothing to ask the plan administrator whether your district permits it.
Yes, as a direct rollover, and it stays tax-deferred. Check the contract's surrender charge first; an old annuity-based 403(b) can charge a percentage of the balance on the way out even though the IRS does not.
Usually, if the new plan accepts incoming rollovers; a 403(b) can generally move to another 403(b), a 401(k) or a governmental 457(b). Ask the new plan for its instructions first, and check the old contract's surrender schedule.
A direct rollover to a traditional IRA or another plan is not taxed at the time; the money remains tax-deferred and is taxed on withdrawal. Cashing out is taxable, with mandatory withholding and, under 59½, an additional 10 percent tax unless an exception applies.
No. A CalSTRS or CalPERS defined-benefit pension pays a monthly benefit under the system's own rules and generally cannot be rolled over. Only the 403(b) or 457(b) account you contributed to has rollover options.
A registry maintained by CalSTRS where every vendor approved to sell 403(b) products to California public school employees lists its products and fees. It is the first place to check any 403(b) product, including anything we discuss with you.
Ready to talk it through? No cost, no obligation, in English or Spanish.
Schedule a CallReviewed by Roberto Morales, California Insurance License #0G97165. Next Wave Options is licensed for life and annuity products only and does not provide investment, tax or legal advice.
