How should Joan Allen instruct her plan administrator to avoid 20% withholding on her 403(b) transfer?

The correct approach for Joan Allen to avoid the 20% withholding on her 403(b) transfer is to have the check made out to "Mega Mutual Funds, for the benefit of Joan Allen." This method is known as a trustee-to-trustee transfer or direct rollover. When the funds are transferred directly from one qualified retirement plan to another without the participant taking possession of the funds, it is not considered a taxable distribution. Hence, no withholding applies.

This option ensures that the distribution is treated as a non-taxable event, as the funds move directly into an eligible retirement account. It preserves the tax-advantaged status of her 403(b) savings, providing Joan the incentive that comes from maintaining her retirement funds within a tax-deferred structure.

Other options either lead to Joan personally holding the funds, which can trigger tax implications and withholding, or direct the funds into her bank account, which has similar issues regarding taxation. Directly sending the funds to her new employer’s plan is effective as well, but only if the funds are sent in the proper format (trustee-to-trustee transfer). The language specified in the correct option specifically clarifies how to structure the transfer correctly to avoid withholding.