403(b) to Roth IRA Conversion: A Guide for Teachers
Pay tax on some pre-tax savings now, so it grows and comes out tax-free later. Here is what that costs, and why your pension changes the answer.
What a 403(b) to Roth conversion actually is
A Roth conversion moves pre-tax money out of a traditional 403(b) or traditional IRA and into a Roth IRA. The amount you convert is added to your taxable income for that year and taxed as ordinary income. There is no 10 percent early-withdrawal penalty on the conversion itself as long as the money moves directly between the two accounts, provider to provider. The cost is the tax, not a penalty.
Whether you can convert depends on where the money sits. Elective-deferral money in your current district's 403(b) usually cannot be moved out until you leave that job or reach age 59 and a half, though some plans allow an in-service rollover earlier depending on the money source and the plan's terms. A 403(b) from a former district can be converted at any time. This is a different move from a plain rollover into a traditional IRA, which keeps the money pre-tax and triggers no tax at all. That like-tax default is covered on our 403(b) to IRA rollover page.
One habit matters more than any other: pay the conversion tax from savings outside the account. Do that and the full converted balance lands in the Roth and keeps growing tax-free. Withhold the tax from the conversion instead and you shrink what actually moves over, and you can trigger a penalty on the withheld portion if you are under 59 and a half. For how to size the bill before you act, see what a Roth conversion costs.
Why a pension changes the Roth math for teachers
Most educators retire with a defined-benefit pension, TRS in Texas, FRS in Florida, CalSTRS in California, and the rest. That pension pays guaranteed, taxable income every year you are retired. Add Social Security where it applies, and a lot of teachers stay in a real tax bracket long after the last paycheck. The usual assumption behind a Roth conversion, that you will be in a much lower bracket later, is not automatic when a pension is doing the earning.
Because the pension already fills the lower brackets, money you later pull from a pre-tax 403(b) can be taxed at a rate close to, or higher than, what you pay today. When that is the case, converting some pre-tax money now buys you a pool you can spend in retirement without adding to your taxable income. That flexibility can help you manage your bracket and sidestep surprises like a higher Medicare premium.
It cuts both ways. The conversion adds income the year you do it, and if your salary plus the converted amount lands in a high bracket now, waiting may win. The right answer turns on your current rate, your expected rate with the pension counted, and how you plan to use the money. It is a number you model, not a rule of thumb you apply.
The two Roth 5-year rules, kept straight
Roth IRAs carry two separate 5-year rules, and people mix them up constantly. One decides when your earnings come out tax-free. The other applies only to money you converted, and exists to stop conversions from being used as a back door around the early-withdrawal penalty.
- Rule 1, for earnings. To take out earnings with no tax and no penalty, your first Roth IRA must have been open at least five years and you must be 59 and a half or meet another exception. This clock starts the first time you open any Roth IRA, and it never restarts, even if you open more accounts later.
- Rule 2, for converted principal. Every conversion starts its own five-year clock. Pull converted principal before that clock runs out while you are under 59 and a half, and the 10 percent penalty can hit that amount. Once you are past 59 and a half, this conversion-specific rule no longer applies to you.
The short version: Rule 1 governs the growth, Rule 2 governs the money you moved in. Both stop mattering for penalties once you reach 59 and a half and have held a Roth for five years.
When a conversion fits, and when to slow down
It tends to make sense when
- You have a former-employer 403(b) you can move now and want to convert a bit at a time over several years.
- Your pension and Social Security will fill the lower brackets, so your future rate looks similar to or higher than today's.
- You have cash outside retirement accounts to pay the tax, so the whole conversion stays invested.
- You want to leave heirs money they can withdraw income-tax-free under current rules.
Slow down and model it when
- You are still working and your salary plus the conversion pushes you into a higher bracket or a higher Medicare premium.
- You would have to pay the tax out of the conversion itself.
- You expect a genuinely lower bracket in retirement, for example a small pension and several low-income years before Social Security starts.
- You have not yet run the numbers against your state tax, your pension, and the rest of your plan.
Frequently Asked Questions
Does a Roth conversion count against my annual Roth IRA contribution limit?
No. A conversion is a separate transaction from a yearly contribution. Converted dollars do not count against the annual Roth IRA contribution limit, so you can still make your regular contribution in a year you also convert.
Will I owe a 10% penalty on a Roth conversion?
There is no 10 percent early-withdrawal penalty on the conversion itself when the money moves directly from your 403(b) to a Roth IRA. The cost is the ordinary income tax on the converted amount. A penalty can apply later if you withdraw converted principal before its own 5-year clock ends and you are under 59 and a half.
Can I convert money from my current district's 403(b)?
It depends on your plan. Elective-deferral money in a current employer's 403(b) usually cannot be moved out before you leave or reach 59 and a half, though some plans allow an in-service rollover earlier depending on the money source and plan terms. A 403(b) from a former district can be converted at any time. Check your plan document.
How should I pay the tax on a conversion?
Pay it from savings outside the retirement account. That keeps the entire converted balance inside the Roth IRA growing tax-free. Withholding the tax from the conversion shrinks what you move over, and can add a penalty on the withheld amount if you are under 59 and a half.
Should I convert my whole 403(b) in one year?
For most teachers, no. A single large conversion can push part of the money into a higher tax bracket. Partial conversions spread across several years, sized to your bracket, usually cost less overall. A tax professional can help you set the pace. See what a Roth conversion costs for the mechanics.
See the conversion modeled both ways
A licensed educator-retirement specialist will run the numbers with your pension included, at no cost and no obligation, so you see the lifetime difference before you decide.
Reviewed by the Life Gateway advisory team. Last reviewed July 2026. Life Gateway is an insurance-licensed financial services firm. This guide is educational and is not individualized tax, legal, or investment advice. Roth conversion and IRS rules change, and your situation is unique, so confirm specifics with your plan administrator and a qualified tax professional before acting. Verify any advisor at FINRA BrokerCheck.