How to Withdraw Funds From a 403(b) Plan

Posted by Anonymous , 9/4/2007 Tags:WithdrawFundsFrom403Plan
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How to Withdraw Funds From a 403(b) Plan

Introduction

When you put money away in a 403(b) plan, you shouldn't withdraw the funds until retirement. This allows the funds to grow tax-free until you withdraw them. You will likely be withdrawing funds in an amount less than the income that you earned while working, so you will be taxed at a lower rate. In certain circumstances, you can also distribute funds from your 403(b) plan before your retirement.

Instructions

Difficulty: Moderately Easy

Things You'll Need

  • 403(b) plan

Steps

1

Step One

Determine your eligibility for withdrawing funds from your 403(b) plan. In most cases, you must be at least 59 1/2 years old to withdraw funds from your 403(b) plan. Among the exceptions that allow you to withdraw funds at a younger age are disability and demonstrated financial hardship.
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Step Two

Determine if you are required to take a distribution from your 403(b) plan. When you retire, you must begin taking withdrawals before April 1 of the year following the one in which you turn 70 1/2 years old. You must continue to take withdrawals each year.
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Step Three

Calculate the amount that you would like to withdraw from your 403(b) plan. As funds were contributed to your plan before taxes, you must withdraw enough to cover the taxes for which you are responsible. The investment company with which you established the 403(b) plan may need to hold a portion of your withdrawal for federal taxes.
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Step Four

Contact the investment company that administers your 403(b) plan for the appropriate paperwork to withdraw funds from your 403(b) plan. You must indicate the amount that you want to withdraw and the method by which you want to receive the funds.
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Step Five

File your income taxes, taking into account the amount that you withdraw from your 403(b) plan. You must pay local, state and federal taxes based on the amount that you withdraw. The fraction of your withdrawal that your plan administrator withholds for taxes is only an estimate. You may need to pay more in taxes depending on the total amount that you withdraw over the course of the year and your other income.

Tips & Warnings

  • If you are leaving your current employer, you can roll your 403(b) plan into another retirement plan, leave it where it is or take a lump-sum payment. Taking a lump-sum payment can incur penalties if you are younger than 59 1/2 years old.
  • If you have any questions about withdrawing funds from a 403(b) plan, especially in the case of early distributions, consult a tax professional.
  • If you withdraw funds from your 403(b) plan and you are not eligible to take an early distribution, in addition to paying taxes on the distribution, you must pay a penalty of 10 percent.
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