403b Withdrawal

In most cases, a 403b withdrawal takes place during the participant’s retirement years. Because 403b plans are designed to provide a specific level of income to participants, earlier 403b distributions can significantly impact the funds available when they are needed at retirement. However, in certain cases it can be financially advantageous or even necessary to make a 403b withdrawal prior to age 59 and one-half, the normal age when 403b withdrawals can be made under existing government rules without additional penalty.

Required minimum distributions

After the age of 70 and one half years, participants in 403b plans are required to accept distributions unless they continue to work and are enrolled in a qualifying plan. Failure to begin distributions by April of the year following the date the participant reaches 70 and one half years of age is subject to the excess-accumulation penalty of 50%; this penalty is assessed on all funds that should have been distributed to the account holder and were not. This is true even if the account holder takes distributions, but does not receive enough to meet IRS requirements regarding 403b distributions.

403b early withdrawal rules

Distributions from 403b accounts are intended to take place during retirement and to consist of equal, periodic payments paid during the lifetime of the account holder and to the surviving spouse after the account holder’s death. Most other distributions are prohibited by 403b withdrawal rules; however, some exceptions are allowed. Early 403b distributions are allowed if the account holder:
  • Is separated from employment and begins to receive regular payments from the 403b plan
  • Is separated from service and has attained the age of 55 years
  • Is partially or fully disabled
  • Dies; in this case, the distribution is made to the beneficiary
  • Incurs medical expenses that are not reimbursed
  • Has excess contributions that must be remedied
  • Is subject to an IRS levy of 403b assets
  • Must make payments under a qualified domestic relations order
In these cases, the 10% penalty usually assessed for early 403b withdrawals is waived.


In most cases, it is more beneficial to the investor to retain funds in their 403b plans rather than to take distributions of those funds before retirement and, upon retirement, to accept the scheduled 403b withdrawals in order to avoid penalties that could prove extremely costly. In certain situations it may be advisable for investors to withdraw a portion of their 403b fund in order to deal with immediate financial issues; however, these funds will then not be available for retirement. If a 403b withdrawal becomes necessary, the account holder should take steps to replace or compensate for these missing funds in order to ensure a safe, secure retirement income.
Tim Ord
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