403(b) Distribution Rules: Withdrawals & Penalties

By Brent Meyer — SafeMoney.com Founder & Editor Reviewed by Licensed Financial Professionals  |  SafeMoney.com — Trusted Since 2011  |  Updated Regularly Quick Answer: 403(b) distribution rules explained: when you can withdraw, RMD requirements, early withdrawal penalties, and rollover options for teachers and nonprofits. Are you counting on a 403(b) plan to help you in retirement? It helps to understand your 403(b) distribution rules so that you can make the most of your money. After spending so many years building up those retirement assets, you want to make the best possible use of them. Many public employees have a 403(b) account. In retirement planning, they find that they can retire at as much as 60 percent or so of their career income without using any individualized income planning . However, some people will prefer to have a retirement income that is more than just that. This article will cover 403(b) distribution rules and options at a high level. The goal is to help you make more well-informed decisions about your retirement savings and your financial future. You will also learn some options to help close any income gaps between what you expect to get and what you need to cover your preferred lifestyle in retirement. The first option – always available – is simply to keep your savings in your 403(b) retirement plan. However, the mutual funds or other investment options in these plans can vary widely in terms of fees and investment options available. If you are happy with how your money has done so far, you might choose to keep it where it is. However, you will still face required withdrawals in the future via required minimum distributions (see below) if you choose this route. Let’s get more into the various 403(b) distribution rules now. Important Ages for 403(b) Distributions It’s good to keep two critical ages in mind when considering 403(b) distributions. Age 59.5 The IRS always lets you withdraw from any tax-qualified retirement account at age 59.5 or older without penalty. This age covers 401(k) plans, 403(b) plans, IRAs, and other retirement-savings accounts of pre-tax status. Rule of 55 The Rule of 55 is an IRS policy that will allow you to take withdrawals before age 59.5 without paying a penalty so long as you meet the requirements. To take advantage of the Rule of 55, you must be at least 55 years of age and leave the job where you have a current 403(b) account. Older accounts from former employers aren’t