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Norm

Withdrawls

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I am 59 and half years old. I want to withdraw a portion of my 403b (TSA) . I have been told that there will be a 1.5% penalty if I withdraw before July of 2004. I was also told that I could secure a loan for the same amount without penalty but would need to start repaying the loan in a month’s time.

Can someone tell me if the 1.5% penalty is common and why am I being subjected to such a penalty after turning 59 and a half? I would also like to know the pros and cons of a loan vs. a withdrawal.

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Norm,

 

I can't know without the facts. It sounds like you're still in the period where the back end charges apply and this is the amount of commission still owed your salesperson.

 

Roberta

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What has your 403(b) agent told you? Get back to us with his or her answer.

He told me that there will be a 1.5% withdrawl penalty until July 2004.

I was under the impression that at age fifty nine and a half, a withdrawl could be made without penalty. I know that any withdrawl will be taxed but he is saying that there will be a penalty and a tax.

I hope this is enough information for an answer.

 

Norm

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Guest eddie

59.5 rule is the IRS rule Most Investors get confused , with this rule,which does apply to the product purchased ,it could a CD, load-MF annuity . most of these products do let you take out 10% without a penalty .

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Guest Chuck Yanikoski

Regarding your question about the advantages of a loan vs. a withdrawal: the loan will save you the surrender charge, but it will cost you some interest. Usually you pay a certain stated percentage, and your account is credited with interest earned that is somewhat less (usually in the neighborhood of 1 percentage point less), so you lose money right off the top on the spread. Furthermore, the interest you pay is NOT tax-deductible, but the interest the account earns WILL be taxable when you take it out. For young people, whose tax won't be due for a long long time, the taxation issue is negligible, but since you expect to be taking withdrawals as soon as you can, the tax when you withdraw the interest credited to your account can be pretty much considered a flat-out expense, meaning (depending on the interest rate and your tax bracket) you are probably losing another 1 or 2 percent to taxes. So between interest spread and taxes, that's probably a net cost to you of 2-3%, which is greater than the surrender charge. Also, you may not even be eligible for a loan -- in general, some kind of predefined "hardship" must be displayed.

 

So I think that in this case you are probably better off swallowing the surrender charge, if those are your only two options. Obviously, in this situation you want to minimize the amount you withdraw prior to next spring, so if you have any other short-term options, check them out before you decide.

 

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