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403b Cashout Question


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#1 dlazic

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Posted 05 May 2006 - 10:55 PM

Hi I am 26 and have been contributing to my 403b for about 4-5 years now. Now I am getting married and in need of some cash. I have total of $15.000 on there now. I wanted to cash out maybe 3 thousand dollars. Is this possible at all? If so, what fees would I encounter based on the amount above?

ps: sorry if this has been asked before, I searched the forum and found a couple that didn't really help me.

#2 sschullo

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Posted 06 May 2006 - 09:06 AM

Hi dlazic,
Congratulations on getting married. I have some bad news and good news for you. First the bad news: it is not possible to cash out you 403b using, getting married, as a qualifying event. Qualifying events are disability, hardship, separated from service. There is a reason for this. The IRS does not want people going into and out of these accounts. This money is used for retirement and is tax deferred, even with a qualifying event you pay dearly, 10% penalty and back taxes. IT IS NEVER A GOOD IDEA, unless you have a qualifying event.

Let me give you some ideas and figures that you want to think about by keeping your money.

1. You are to be congratulated for saving at such a young age, you are very wise.
2. Majority of educators, assuming you are an educator, have nothing in their 403b at any age.
3. Look at these calculations using your $15,000 and assuming you do NOT put anymore in your 403b for the rest of your working career:

1. When you are 56 years old, you will have $64,829.14 by earning 5% compounded annually.
2. When you are 56 you will have $150,939.85 by earning 8% compounded annually, which is possible with a diversified portfolio across several asset classes (mid cap, small cap, large cap, international fund families) and using low cost indexed mutual funds. (If you want to learn about these asset classes and index funds, stick around here and ask questions).

Sure, these amounts may not be enough to sustain your lifestyle in retirement, but please consider that most educators have NOTHING ever, result; they will have to work much much later than they wanted to, many into their late 60s.
Now consider those calculations if you continue to put some money into your 403b for you entire career. You will probably retire at 50. Reason: You have time, you started so young. Time is a great asset for investments.

Hope this helps,
Steve
an old geezer at 58 and educator, , who is lucky to have to same partner for 31 years, but who did not start my 403b until I was 37 but still I have amassed a very nice nest egg to supplement my pension and will retire in a year or two.


#3 FrenchTeacher

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Posted 06 May 2006 - 11:35 AM


Hi dlazic,

Steve is right, I think, when he talks about raiding your 403(b) as a last resort only. The penalties are too high, and the opportunity cost is extensive.

A "middle ground" might be to borrow some of the funds that are in your account, as opposed to taking out a loan. Many providers offer loans, often up to 50% of the balance, and in many cases the interest you pay is paid back directly into your account, so you wind up effectively paying yourself the interest. Whether or not this is a workable idea depends entirely on who your provider is, and whether they even allow loans against your account in the first place. You should call your agent if you have one (and call the company directly if you don't), and find out the details: how much of a loan is permissible, what the interest rate would be, how the payback would work, etc. A loan would DEFINITELY be preferable to a withdrawal, though from a retirement planning point of view, of course, it would still be preferable to find the money elsewhere if at all possible.

Hope this helps.

#4 ira

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Posted 06 May 2006 - 05:59 PM

Some aditional information.

Aside from the penalty that you have to pay for cashing early, you still have to pay state and federal taxes. .

Additional if you have a loaded fund (you will know if you used a SALES advisor instead of a low expense no load fund that Vanguard, Fidelity and a few others sell, you will in addition be responsble for surrender fees that many of these loaded funds funds charge.

I agree with the other posters that it would be a horrible decision to liquidate your 403b

Also, the s and p 500 has been going up an average of 7 percent a year over the the inflation rate which has been averaging 3 percent a year, so the 500 has been averaging 10 percent a year over the last 100 years or so.,

So if your money increases at 10 percent rate on the average, your portfolio would double every 7.2 years(72/ yearly percent increase), so when you are 64 it will be worth about 240,000 (even if you do not invest any new money).



#5 JMacDonald

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Posted 06 May 2006 - 06:05 PM

Hi,
Before you think about taking out a loan from your 403b, read this article here on 403bwise:

http://www.403bwise....03bloan_wc.html

I would leave the 403b funds that you have alone, and try to find the money some other place. Best Wishes.

Joe

#6 Shavenyak

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Posted 07 May 2006 - 11:32 PM

My recommendation, if you truly need the money, is to stop your contributions to your 403(b), take out a personal loan from your bank/credit union and use the amount you have been contributing to pay it back.

Once you've paid it back, start to invest again.

I really hate to recommend this, but I feel it's your best bet. Let your savings gain interest while you pay off the loan. You'll save money in the long run.

--Roman

#7 RetiredTeacherNEA

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Posted 10 May 2006 - 11:56 AM

if you have a membership in a credit union and shares in it, usually you can take a 0% loan against shares ( at least I can) Our payback is 2 years.

OTOH, it costs my husband 1.5% to take a loan on a 403(b) - open account .

You have to look into the ability you have. W/out $$ in the credit union, I would have taken a loan on the open 403(b)