Generally, a distribution cannot be made from a 403(b) account until the employee:
- Reaches age 591/2,
- Has a severance from employment,
- Becomes disabled,
- In the case of salary reduction contributions, encounters financial hardship, or
- Has a qualified reservist distribution.
In most cases, the payments you receive or that are made available to you under your 403(b) account are taxable in full as ordinary income. In general, the same tax rules apply to distributions from 403(b) plans that apply to distributions from other retirement plans. These rules are explained in Publication 575. Publication 575 also discusses the additional tax on early distributions from retirement plans. taxmap/pubs/p571-021.htm#en_us_publink1000239742
For tax years beginning after December 31, 2006, if you are an eligible retired public safety officer, distributions of up to $3,000, made directly from your 403(b) plan to pay accident, health, or long-term care insurance, are not included in your taxable income. The premiums can be for you, your spouse, or your dependents.
A public safety officer is a law enforcement officer, fire fighter, chaplain, or member of a rescue squad or ambulance crew.
For additional information, see Publication 575, Pension and Annuity Income.taxmap/pubs/p571-021.htm#en_us_publink1000239743
The 10% penalty for early withdrawal will not apply to a qualified reservist distribution attributable to elective deferrals from a 403(b) plan. A qualified reservist distribution
is a distribution that is made:
- To an individual who is a reservist or national guardsman and who was ordered or called to active duty for a period in excess of 179 days or for an indefinite period; and
- During the period beginning on the date of the order or call to duty and ending at the close of the active duty period.
You must receive all, or at least a certain minimum, of your interest accruing after 1986 in the 403(b) plan by April 1 of the calendar year following the later of the calendar year in which you become age 701/2, or the calendar year in which you retire.
Check with your employer, plan administrator, or provider to find out whether this rule also applies to pre-1987 accruals. If not, a minimum amount of these accruals must begin to be distributed by the later of the end of the calendar year in which you reach age 75 or April 1 of the calendar year following retirement. For each year thereafter, the minimum distribution must be made by the last day of the year. If you do not receive the required minimum distribution, you are subject to a nondeductible 50% excise tax on the difference between the required minimum distribution and the amount actually distributed.
For calendar year 2009, there is a temporary waiver of the minimum required distribution from a 403(b) plan. Generally, you are not required to take a minimum distribution from your 403(b) plan in 2009. However, if your required beginning date was April 1, 2009, because you reached 701/2 in 2008, you should have taken the required minimum distribution in 2009.
If you reach age 701/2 in 2009, you are not required to take a minimum required distribution from your 403(b) plan by April 1, 2010. Your first required distribution must be made by December 31, 2010. For more information see section 401(a)(9)(H).taxmap/pubs/p571-021.htm#en_us_publink1000239746
If you received an eligible rollover distribution during calendar year 2009, which could not be treated as a required minimum distribution due to the temporary waiver, you may be able to make a direct rollover of the distribution. If you can make a direct rollover, your plan will notify you. If you are unable to make the direct rollover, you can roll over the distribution into an eligible retirement plan within 60 days of the distribution. Also, you are not subject to the mandatory 20 percent income tax withholding requirement. For rules on rollovers, see Tax-Free Rollovers,
on this page.
If you received a 2009 minimum required distribution, you now have until the later of November 30, 2009, or 60 days after the date the distribution was received to roll it over. For more information see Notice 2009-82.
For more information on minimum distribution requirements and the additional tax that applies if too little is distributed each year, see Publication 575. taxmap/pubs/p571-021.htm#en_us_publink1000239747
A distribution from a 403(b) plan does not qualify as a lump-sum distribution. This means you cannot use the special 10-year tax option to calculate the taxable portion of a 403(b) distribution. For more information, see Publication 575.