403b plans only
permit money to be withdrawn from the account under limited
circumstances.
Qualified
withdrawals from a 403b plan take place when you reach age 59
1/2.
These withdrawals
are reported as taxable income, but you do not have to pay any
penalties on the withdrawals.
Other times that
non-qualified withdrawals are permitted include when the employee
leaves employment, whether by choice or when fired; if the employee
suffers a permanent disability; or has a financial
hardship.
Financial hardships refer to
situations where the employee has no other financial resources to use
to meet the need, such as needing money to avoid eviction.
What is
the 403(b) withdrawal regulation?
Once you withdraw funds from your retirement plan, your
distribution is subject to ordinary income taxes.
If you have a 403(b) account and you withdraw money from
your account before you reach age 59 1/2, there may be a 10%
early-withdrawal penalty payable to the IRS on any pre-tax amount
withdrawn.
In addition, your distribution will be subject to
mandatory 20% federal income tax withholding unless the entire
withdrawal is rolled over directly to another qualified retirement plan
or IRA.
Are
there exceptions to the distribution penalty?
According to the IRS, a 10% premature withdrawal penalty
can be waived if the employee:
- Reaches age 59 1/2,
- Separates from service,
- Dies,
- Becomes disabled, or
- In the case of salary reduction contributions,
encounters financial hardship.
Seek a professional before you take any withdrawals from your 403b
account.
If you are
considering Retirement Planning, call for a free consultation today.
