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MS2005

Non Hardship, Non Suspension In Service Withdrawals

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403b's have the provision of allowing employees take an in service withdrawal. I need to know when this money, if moved to an IRA, will I have to pay income taxes on that amount? Secondly, do I have to have a qualifying event to do so, ie disability, age 59 1/2, retirement, etc to avoid the 10% early withdrawal penalty?

 

Thanks-

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Section 403(b)(11) of the Internal Revenue Code restricts withdrawals of money in a 403(b) account that is a result of salary reduction contributions. You cannot withdraw funds unless a qualifying event occurs, which include death, disability, severance of employment or attainment of age 59½.

 

There are two exceptions to this rule. One is financial hardship. The other is if you have an account balance in a 403(b)(1) account as of December 31, 1988. That account balance is not subject to the restrictions, but any earnings thereon IS so subject.

 

If funds are rolled from a 403(b) to an IRA, it is a non-taxable transaction. Thus, income taxes nor penalties will be applicable. You only pay taxes and penalties when you take receipt of the money and don't roll it into another retirement account.

 

I hope this is of benefit to you.

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