<#-- Rebranding: Header Logo--> <#-- Rebranding: Footer Logo-->
  1. 403(b) Plan: Introduction
  2. 403(b) Plan: Eligibility Requirements
  3. 403(b) Plan: Contributions
  4. 403(b) Plan: Distributions
  5. 403(b) Plan: Conclusion

When You Can Start Taking Distributions

You can start taking 403(b) plan distributions once you reach age 59½. You can also take distributions if you sever from your employer, if your employer terminates the plan or if you become disabled. You can take distributions of your elective deferrals if you experience a qualified financial hardship. If you’re a qualified military reservist called to active duty, you may be eligible to take early distributions without penalty. And if you die before age 59½, your estate or beneficiaries can take distributions. Any of these events that allow you to take distributions without penalty are called triggering events.

When You Must Start Taking Distributions

As a 403(b) plan participant, you must take annual required minimum distributions (RMDs) starting by April 1 after the calendar year when you turn 70½. For example, if you turn 70 on July 26, 2016, and reach age 70½ on January 26, 2017, you have until April 1, 2018, to take your first RMD. Some plans allow participants to postpone RMDs until April 1 of the year after they retire, even if they retire after age 70½. (Related: Avoiding Mistakes In Required Minimum Distributions (RMD)

Minimums are based on the account balance and your life expectancy as defined by the IRS’s Uniform Lifetime Tables. You are allowed to withdraw more than the minimum. 

If you don’t take these distributions, you must pay a 50% tax on the difference between the amount you were required to take out and the amount you actually took out. This tax is called an excess accumulation penalty. 

Taxes on Distributions

Distributions are fully taxable at ordinary income tax rates, unless they are Roth distributions, which are not taxable. However, if you’re a retired public safety officer such as a firefighter, police officer, chaplain, or ambulance worker, you can take up to $3,000 in distributions tax free to pay accident, health or long-term care insurance premiums for yourself and your immediate family. 

Early Distributions

If you take distributions before you reach age 59½ and your circumstances aren’t one of the triggering events described above, you’ll usually have to pay a 10% federal tax penalty on the amount you take out, in addition to the ordinary income tax you would pay on your distribution under any circumstance. And your state may impose additional tax penalties. But there are a few exceptions: 

  • You’re at least 55 when you separate from service.
  • You retire before age 55 and take substantially equal periodic payments following IRS rules.
  • You separate from service and move the money to another retirement account.
  • You get divorced and the court orders a division of your 403(b) assets with your former spouse.
  • Your medical expenses exceed 7.5% of your adjusted gross income.

Your plan may also allow you to borrow from your 403(b). You can borrow up to $50,000 or half of your account’s value, whichever is less. You must repay the loan with interest. 

403(b) Plan: Conclusion
Related Articles
  1. Retirement

    The Magic Age of 59½

    At age 59½ you can withdraw from IRAs or borrow from your 401(k) without paying a penalty. You will owe income tax on all but Roth funds, however.
  2. Retirement

    How a 403(b) Works After Retirement

    How, or if, you should withdraw 403(b) funds depends on a number of factors and options available to you.
  3. Financial Advisor

    Why Age 70 is Pivotal for Retirement Planning

    Age 70 marks the time that you will have to start thinking about RMDs for real, but it's better to start planning for them much sooner.
  4. Retirement

    Doing Required Minimum Distributions (RMDs) Right

    The process for taking required minimum distributions from an IRA account is complicated, and making a mistake is costly.
  5. Retirement

    How a 401(k) Works After Retirement

    Find out how your 401(k) works after you retire, including when you are required to begin taking distributions and the tax impact of your withdrawals.
  6. Retirement

    Retirement Plan Tax Prep Checklist

    Here's a list of items you need to have in order by tax time, including paying attention to those pesky required minimum distributions.
Trading Center