Taking Money Out Of 403BJanuary 18, 2010
Taking Money Out of A 403b – Just the Facts 403b plans were put into place by congress in 1978. A 403b retirement plan allows a worker to save for retirement through a company sponsored retirement savings program. 403b plans allow you to save while investing and deferring current income taxes until later withdrawal of the funds upon retirement. For employees of companies that offer 403b plans, they can choose to have their wages paid directly into the account. Some employers even match part or all of the employee’s contribution. The funds that are deducted from your payroll receive tax deferral treatment while invested in the retirement plan. If you leave your employer prior to retirement, or at time of retirement you can do a 403b rollover into IRA. This IRA account is a self directed retirement account and will offer more in If you have a 403b and are finding yourself facing money troubles, you may be wondering what the rules are about tapping into some of that cash. As you probably already know, virtually all employers have severe restrictions in place concerning withdrawals. The heaviest restrictions are for those people who are still with the company and are under the age of 59 1/2. typically the IRS imposes a 10% penalty for early withdrawals. When can you take money out of a 403b retirement account? Here are the facts:
Fact #1: You may start taking money out of your 401K at age 59 1/2 without paying penalties: Once you reach the age of 59 1/2, you may start withdrawing funds from your 403b. You still must pay taxes on the income at the standard income tax rate, however. Remember, the money in your 403b represents deferred income, not tax-free income. However, if you want to withdraw from your plan before that age, you will be subject to a 10% excise tax – along with owing income taxes on the money, of course.
Fact #2: You are required to start taking money out at age 70 1/2 or after retiring, this is caled required minimum distributions (R.M.D.) Account owners are required by law to start withdrawing from their accounts by April 1 of the calendar year after turning 70 1/2 (or by April 1 of the calendar year after retiring, whichever comes later). The distribution amount varies and is based upon life expectancy tables created by the IRS.
Fact #3: You can borrow up to 50% of your vested 403b balance: Depending upon your plan, you may be eligible to take out a loan against your 403b. This usually requires a $1,000 minimum loan amount. You must pay a reasonable rate of interest on this loan. However, the interest paid goes right back into your account – so, you are effectively paying yourself this interest. There is a maximum payback period of five years and payment amounts must be equal and evenly spread out (e.g., quarterly).
Fact #4: There are exceptions to the 10% early-distribution penalty: In some cases, you do not have to pay a penalty for withdrawing money early from your account. Such reasons include: the employee’s death, the employee’s total and permanent disability, separation from service in or after the year the employee reached age 55, a qualified domestic relations order, and for deductible medical expenses (exceeding the 7.5% floor). Note that some employers may disallow one, several, or all of these “hardship causes.” Know the facts about your 403b plan 403b rollover options and you will be prepared to access the money in your account at the most appropriate time and in the way most beneficial to you.