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Traditional 403b

How a Traditional 403b Works

If you save in the Traditional 403(b) plan, your contributions and any growth, dividends, or earned interest will accumulate tax deferred until you withdraw funds, usually at retirement. Then income is taxed only as funds are withdrawn and generally taxed as ordinary income. You can make contributions to a 403(b) plan only by a salary reduction agreement with your employer. The amount you save or invest in the plan is called an elective deferral. With a Traditional 403(b), the amount you contribute is deducted from your paycheck before taxes are taken out by your employer. The money is then forwarded to the custodial investment firm that manages your money.

Loans, Distributions and Transfer/Exchanges/Rollovers

When can I take a distribution from this plan?

Generally, you may request a distribution when you reach retirement age, terminate your employment with the employer, or become disabled. A qualifying event is required to permit distribution of your account balance.

403b Plan Qualifying Events:

  • Attainment of age 59 ½
  • Severance from employment
  • Total and permanent disability
  • A participant that is a reserve member of a U.S. military service who is called to active duty for six months or more (qualified reservist).
  • Death
  • Plan termination
  • Hardship (special requirements apply)

Can I get money from the plan while I am still employed?

Depending on the provisions of the custodial account or annuity contract you select to hold your contributions, certain other distributions may be allowed, such as Hardship withdrawals for certain financial emergencies; In-Service withdrawals if you are at least 59 ½ years old; and Loans.

Will I be taxed on my distribution?

  • Because Traditional 403b contributions are pre-tax, distributions are included in your gross income. Your actual tax liability will be determined based on your personal income tax return; however, you are required to withhold a mandatory 20% federal and 5% state tax as an estimate of your actual tax liability. Some distributions, such as hardship withdrawals, cannot be rolled over, and will therefore be subject to income taxation.

Can I exchange/transfer/rollover my accounts to a new custodial account or annuity contract?

  • You may exchange your account, tax-free, to any approved investment providers and 403(b) investment products under this plan. Certain charges may apply. If you terminate employment you may transfer your account, tax-free, to another accepting 403b plan at your new employer. If you meet a qualifying event for distribution, you may rollover your account, tax-free, to another tax qualified retirement plan or Individual Retirement Account (IRA). (Some distributions, such as hardship withdrawals, cannot be rolled over, and will therefore be subject to income taxation.)