Home / For Educators / What Happens to Your 403(b) or 457(b) When You Retire in California?
403(b)
If you're a California educator approaching retirement, you may be wondering what happens to the money you've accumulated in your 403(b) or 457(b).
The good news is that retirement doesn't mean you have to withdraw your savings. You may have several options for keeping your money invested, protecting your principal, or creating additional retirement income.
Understanding these options can help you make the most of the savings you've worked so hard to build.
Both 403(b) and 457(b) plans are designed to help educators save for retirement, often alongside their CalSTRS pension.
When you retire or leave your school district, your savings remain yours. Depending on your plan and the products you own, you may be able to leave your money where it is, move it to another eligible retirement account, or begin taking withdrawals.
The important question isn't simply what happens to your account. It's what you want your savings to accomplish during retirement.
For many California educators, there are four primary options to consider.
You may be able to keep your 403(b) or 457(b) with your existing provider after retirement.
This may make sense if you're satisfied with your current account, but it's worth reviewing whether the investment options, fees, and level of market risk still align with your retirement goals.
Once you're eligible, you may be able to roll your 403(b) or governmental 457(b) into an Individual Retirement Account (IRA).
A direct rollover of eligible pretax funds into a traditional IRA generally does not create an immediate taxable event.
An IRA may provide access to different retirement strategies, including options designed for principal protection and potential growth.
Once you retire and are no longer receiving eligible payroll compensation, you generally cannot continue contributing to your former employer's 403(b) or 457(b). However, an IRA allows you to continue making contributions if you have eligible earned income.
Before moving a 457(b), it's especially important to consider the withdrawal rules, since governmental 457(b) plans offer certain early-access advantages that may be lost in an IRA.
As retirement approaches, protecting the money you've accumulated may become increasingly important.
Certain fixed indexed annuities offer opportunities for interest growth linked to a market index without directly exposing your principal to stock market losses.
These strategies may also provide options for generating retirement income.
However, annuities have different terms, including surrender periods, withdrawal limitations, and possible optional rider fees. It's important to understand those details before making a decision.
You may decide to use some of your savings to supplement your CalSTRS pension or cover expenses during retirement.
Withdrawals from pretax accounts are generally subject to ordinary income taxes.
Your age, account type, and withdrawal timing can affect whether additional tax penalties apply.
Although both accounts help educators save for retirement, their withdrawal rules are not identical.
With a 403(b), withdrawals before age 59½ may be subject to an additional 10% federal tax unless an exception applies.
With a governmental 457(b), withdrawals after separation from employment generally aren't subject to that additional 10% tax, regardless of age. An exception can apply to money previously rolled into the plan from other account types.
This difference can be especially important for California educators considering retirement before age 59½.
The retirement strategy that worked while you were teaching may not be the strategy you want after you retire.
As you approach this next chapter, consider whether your current 403(b) or 457(b) provides the balance of growth potential, principal protection, and access to money that you're looking for.
Your CalSTRS pension may provide a foundation of retirement income, while your supplemental savings can play an important role in your overall financial security.
At Welles Consulting, we have over 20 years of experience helping individuals navigate important retirement decisions, with a particular focus on California educators.
Whether you're approaching retirement or have already retired, we can help you review your existing 403(b) or 457(b), understand your available options, and explore strategies designed to protect your retirement savings while providing opportunities for growth.
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Sources: Internal Revenue Service: Retirement Topics, Vesting, on contributions you make; Retirement Plans FAQs regarding 403(b) Tax-Sheltered Annuity Plans, on when a plan may allow money out; Publication 571, Tax-Sheltered Annuity Plans (403(b) Plans), on rollovers to a traditional IRA and how payments are taxed; Publication 575, Pension and Annuity Income, on deferring tax by a rollover; Notice 2026-13, Safe Harbor Explanations for Eligible Rollover Distributions, on direct rollovers and on 457(b) money rolled into an IRA; Retirement Topics, Exceptions to Tax on Early Distributions; Topic No. 558, Additional Tax on Early Distributions from Retirement Plans Other Than IRAs; Publication 590-A, Contributions to Individual Retirement Arrangements, on who can contribute to a traditional IRA (irs.gov). Treasury Regulations 1.457-4 and 1.415(c)-2, on deferrals and compensation after severance from employment (govinfo.gov). California Department of Insurance, Annuities: What Seniors Need to Know, on indexed annuities, principal, surrender charges and fees, and its Life Insurance Guide, on riders.
