403b Withdrawal Rules

Saving for retirement is one of the primary concerns for many people and especially those people who are nearing retirement. There are various retirement plans available today such as, the 401k retirement plan and the 403b retirement plans. Most of these plans offer excellent tax benefits and other added benefits as well.

The 403b retirement plan is one of the retirement savings plans that are available from public education organizations, cooperative hospital service organizations and also a few non-profit employers and self employed ministers as well.

Purpose of the 403b Plan

The main purpose of investing in a saving plan such as the 403b retirement plan is to be able to use this money when there may be no other source of income available in the future. The amount that is contributed to the plan keeps growing tax-deferred until money is withdrawn from the plan when it is taxed as income.

Withdrawals can be taken out from the plan when the person reaches the age of 59 ½. However, the money can be allowed to grow in the account till the age of 70 ½ after which regular distributions of the money becomes mandatory.

Rules Concerning Withdrawal of a 403b Retirement Plan

The 403b withdrawal rules are primarily concerning the qualified withdrawals, hardship withdrawals and also the required minimum distributions. The plan allows for qualified withdrawals from the time an individual attains the age of retirement. For the purpose of the 403b retirement plan, the age of retirement is 59 ½ years. The amount that is withdrawn from the account, although it may be ‘qualified’, will be taxable in the hands of the individual as income tax.

There are times when an individual may not have any source of income to depend upon, except the savings that are available in the retirement plans. In these situations, the 403b withdrawal rules allow for hardship distributions to be taken out from the account. This could also be called an IRA hardship withdrawal as well because the 403b withdrawal rules are governed by the IRA rules. An example where an individual would qualify for a hardship withdrawal could be trying to avoid a foreclosure, or similar situations.

The regulations that had been proposed for so long have now been finalized – and they will have the most significant impact on 403(b) plans in over 40 years! 403(b) Answer Book provides in-depth coverage of the final 403(b) regulations. This one-volume resource delivers clear and concise answers to all of your 403(b) questions. (read more)

The 403b withdrawal rules also hold that when an individual reaches the age of 70 ½, the individual must start receiving regular distributions from the investment account. The ‘minimum’ amount for this purpose is determined by the IRS by taking into account the estimated number of years that the payments should be made and the value of the funds available in the account.

To avoid going into hardships, the most reasonable method is by transforming debt into wealth. This can be achieved by paying off a ‘little more’ towards mortgages and loans and by investing in savings plans such as the 403b plan. By doing so, it is possible to pay of the loans much earlier than it would have otherwise been possible.

While the withdrawal rules concerning the 403b plans are important, it is also essential to be aware of the 403b contribution limits to maximize the benefit from these plans.

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