When can you take money out of a 403(b)?
Under IRS Publication 571, payments from a 403(b) generally cannot begin until you reach age 59½, leave your employer, die or become disabled, or, for your own contributions, face a financial hardship, plus a few special cases added in recent years (Pub. 571). So a teacher or nurse who is still working usually cannot roll over an active 403(b) unless the plan allows it. The plan document decides, so ask your plan administrator.
What can and cannot be rolled over
- Can be rolled: all or part of an eligible distribution to a traditional IRA or another non-Roth eligible plan, tax-free.
- Roth IRA: a distribution can be converted to a Roth IRA by direct rollover, but the converted amount is generally included in that year’s taxable income.
- Cannot be rolled tax-free: required minimum distributions, payments that are a series of substantially equal payments over your life, the joint lives of you and a beneficiary, or 10 years or more, hardship distributions, and corrective distributions of excess contributions.
The traps
- Withholding. A taxable eligible rollover distribution paid to you from an employer plan is subject to mandatory withholding, generally 20%, even if you intend to roll it over (IRS Topic 413). Ask for a direct rollover instead.
- The age 55 exception. The IRS lists an exception to the 10% additional tax for leaving your employer in or after the year you turn 55 for qualified plans but not for IRAs (IRS exceptions table). If you are between 55 and 59½ and may need cash, ask your tax professional whether your 403(b) qualifies before you roll it to an IRA.
- Contract exchanges are different. A 403(b) can be held in annuity contracts, and the IRS has separate rules for exchanging one 403(b) contract for another inside the plan (IRS 403(b) FAQs). If your 403(b) is already an annuity, ask the current issuer about surrender charges before you move it.
- Loans and after-tax money. A loan treated as a distribution cannot be rolled over. If any of your balance is after-tax money, ask the plan how it can be rolled.
What the annuity changes
Once the money is in a traditional IRA, it follows IRA rules, including required minimum distributions, whether it sits in an annuity or not. The 403(b) did not need an annuity to defer tax, so the question is whether you want the contract features and can accept the surrender charges. See every rollover account at a glance and what to ask before you move money.
Rolling over a 403(b)? Get a second opinion first.
Request a no-obligation Retirement Income Review. We explain your options in plain English, with no pressure and no promises of returns.
Request my Retirement Income ReviewQuestions to ask your 403(b) plan
- Am I eligible to take a distribution now, and under which event?
- Can the plan send a direct rollover to an IRA, and what paperwork does the receiving company need?
- Are any of my contracts annuities with surrender charges, and what is the schedule?
- Do I have a loan outstanding, or any after-tax money?
- What happens to the money if I leave it in the plan instead?
Related reading
Compare with a 457(b) and the age 55 rule, and see how annuities are taxed.
Where to check these rules
Every rule on this page comes from the IRS. Read the source for your situation:
- IRS Publication 571: Tax-sheltered annuity plans (403(b) plans)
- IRS: FAQs regarding 403(b) plans
- IRS: Rollovers of retirement plan and IRA distributions
- IRS Topic 413: Rollovers from retirement plans
- IRS: Exceptions to tax on early distributions
Availability and rules vary by state
Life insurance and annuity products, rates, riders and consumer protections differ by state, and a given product may not be available in every state. Honorbrook is licensed in the 11 states below; which products we can offer you depends on what carriers sell in your state. Each state’s insurance regulator can verify an agent’s license and answer consumer questions.
- Virginia: Virginia Bureau of Insurance
- Maryland: Maryland Insurance Administration
- North Carolina: North Carolina Department of Insurance
- South Carolina: South Carolina Department of Insurance
- Georgia: Georgia Office of Insurance and Safety Fire Commissioner
- Alabama: Alabama Department of Insurance
- Louisiana: Louisiana Department of Insurance
- Texas: Texas Department of Insurance
- Michigan: Michigan Department of Insurance and Financial Services
- Indiana: Indiana Department of Insurance
- West Virginia: West Virginia Offices of the Insurance Commissioner
This article is general information and is not tax, legal, investment or financial advice. Annuity guarantees depend on the issuing company’s claims-paying ability, and surrender charges and fees may apply. A licensed agent can help with your situation.