403(b) Withdrawal Options

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on September 07, 2023

Are You Retirement Ready?

403(b) Withdrawal Options Overview

403(b) withdrawal options refer to the various ways a participant in a 403(b) retirement plan can access their saved funds.

These options, which include regular distributions, early distributions, loans, hardship withdrawals, and rollovers, serve the purpose of providing financial flexibility, especially during retirement or in times of financial hardship.

They are crucial for readers, particularly those who participate in a 403(b) plan, as these options directly impact their financial and retirement planning strategies.

However, each option comes with potential tax implications and other consequences, underscoring the importance of careful decision-making.

Understanding 403(b) withdrawal options, therefore, forms a significant part of successful retirement planning and financial management.

403(b) Withdrawal Options

Understanding how 403(b) withdrawal options work is crucial to making informed decisions about your retirement savings.

Normal Distributions

Normal distributions from a 403(b) plan can begin without penalty once the account holder reaches the age of 59 ½. At this point, withdrawals are subject to ordinary income tax but are not subject to the 10% early withdrawal penalty.

Early Distributions

Early distributions refer to withdrawals made before the age of 59 ½. These distributions are not only subject to ordinary income tax, but they also often incur a 10% early withdrawal penalty unless they qualify for an exception.

Required Minimum Distributions (RMDs)

RMDs are the minimum amounts that retirement plan account owners must withdraw annually starting with the year they reach 73.

The RMD rules are designed to ensure that savers don't just accumulate retirement accounts but actually spend them in their retirement.

Loans and Hardship Withdrawals

Some 403(b) plans allow for loans or hardship withdrawals. Loans must be repaid within a specified period, typically five years. Hardship withdrawals are allowed for immediate and heavy financial need, according to IRS guidelines.

Rollovers to Other Retirement Accounts

Account holders can choose to roll over their 403(b) funds into another eligible retirement account such as a 401(k) or an IRA. This allows for continued tax-deferred growth of the retirement funds.

403(b) Withdrawal Options

Benefits of Various 403(b) Withdrawal Options

The flexibility of 403(b) withdrawal options offers several benefits.

Flexibility and Accessibility

Having various withdrawal options provides flexibility and accessibility, allowing individuals to tailor their retirement income to their specific needs and circumstances.

Potential for Continued Tax-Deferred Growth

Rollovers allow for the continued tax-deferred growth of retirement funds, which can enhance the overall value of your retirement savings.

Availability of Funds in Case of Emergency

Hardship withdrawals can provide financial relief in emergencies, ensuring that individuals can access their funds when they need them the most.

Repayment to Own Account

If you take out a loan from your 403(b) account, the repayments, including interest, go back into your account, essentially paying yourself back.

Drawbacks of 403(b) Withdrawal Options

While 403(b) withdrawal options offer flexibility, they also come with potential drawbacks.

Early Withdrawal Penalties

Early distributions before age 59 ½ typically incur a 10% early withdrawal penalty, which can significantly reduce your retirement savings.

Possible Higher Tax Bracket

Large withdrawals could push an individual into a higher tax bracket for that year, resulting in a higher tax obligation.

Impact on Long-term Retirement Savings

Early distributions, loans, and hardship withdrawals can significantly reduce the overall value of your retirement savings and impact your long-term financial security.

Risk of Outliving Retirement Savings

If withdrawals are too large or start too early, there is a risk of outliving retirement savings, leaving individuals financially vulnerable in their later years.

Benefits and Drawbacks of 403(b) Withdrawal Options

Best Practices for Utilizing 403(b) Withdrawal Options

Successfully managing 403(b) withdrawal options often involves strategic planning and understanding the implications of each choice.

Understanding Tax Implications

Each withdrawal option carries different tax implications, including potential income tax and early withdrawal penalties. Understanding these can help minimize tax obligations and avoid unexpected tax bills.

Planning for Retirement Income

Having a solid retirement income plan can help ensure that withdrawals are appropriately sized and timed to provide a steady income stream throughout retirement.

Considering Professional Advice

Given the complexity of tax rules and retirement planning, seeking advice from a financial advisor can be beneficial. They can provide personalized guidance based on your unique circumstances and retirement goals.

Best Practices for Utilizing 403(b) Withdrawal Options

Legal Implications and Considerations for 403(b) Withdrawal Options

Understanding the legal aspects associated with 403(b) withdrawal options is critical to avoid penalties and ensure compliance with regulations.

IRS Guidelines

The IRS has specific guidelines governing early distributions, loans, hardship withdrawals, and rollovers from 403(b) accounts. These guidelines outline the qualifying circumstances for each withdrawal option, potential penalties, and tax implications.

Employee Retirement Income Security Act (ERISA)

The Employee Retirement Income Security Act (ERISA) governs most retirement plans, including some 403(b) plans. ERISA stipulates minimum standards for retirement plans and protects the interests of employee benefit plan participants and their beneficiaries.

Compliance With State Laws

State laws can also affect 403(b) withdrawal options. Some states may offer additional protections for retirement accounts in the event of bankruptcy or lawsuits. It's important to understand the state-specific regulations that apply to your retirement savings.

Considerations for Loans and Hardship Withdrawals

Loans and hardship withdrawals from 403(b) plans can provide needed funds in emergencies, but they also have important considerations.

Taking Loans From 403(b) Account

Some 403(b) plans permit loans. When you borrow from your 403(b), you're required to pay interest on the loan, and the repayment goes back into your account.

However, if you fail to repay the loan, it's considered a distribution and is subject to taxes and possibly penalties. Also, if you leave your job, the loan often becomes due much sooner.

Hardship Withdrawals From 403(b) Account

Hardship withdrawals from a 403(b) plan are subject to specific IRS criteria, including medical expenses, home purchase, education costs, eviction prevention, funeral expenses, and home repairs.

However, hardship withdrawals permanently reduce your retirement savings and are subject to income tax and potentially an early withdrawal penalty.


Understanding your 403(b) withdrawal options is crucial for effective retirement planning.

With options such as regular distributions, early distributions, loans, hardship withdrawals, and rollovers, you have the flexibility to manage your retirement savings according to your specific needs.

Withdrawal options for 403(b) plan offer benefits like accessibility and tax-deferred growth but come with drawbacks such as penalties, tax implications, impact on retirement savings, and longevity risk.

It's essential to understand the tax implications, plan your retirement income strategically, and consider seeking professional advice.

Also, staying compliant with IRS guidelines, ERISA, and state laws is vital. Always remember your retirement decisions today will significantly impact your financial comfort in the future. Make those decisions wisely.

403(b) Withdrawal Options FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.

Meet Retirement Planning Consultants in Your Area