CARES ACT 403(b) Withdrawal

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on September 07, 2023

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CARES Act 403(b) Withdrawal Overview

The Coronavirus Aid, Relief, and Economic Security (CARES) Act 403(b) withdrawal refers to the provision allowing penalty-free withdrawals from 403(b) retirement accounts for those financially impacted by the COVID-19 pandemic.

The primary purpose of this provision was to provide immediate financial relief to individuals facing economic hardship.

It enables readers, especially those employed by public schools, certain tax-exempt organizations, and ministers, to access their retirement savings without incurring the typical 10% early withdrawal penalty if under 59½ years.

However, such withdrawals may impact long-term retirement savings, emphasizing the need for careful consideration.

This aspect of the CARES Act has particular relevance in the broader context of financial planning and management during a crisis, underscoring the role of legislative action in supporting individual financial resilience..

Eligibility Criteria for CARES Act 403(b) Withdrawals

The CARES Act outlines specific eligibility requirements for those seeking to withdraw from their 403(b) accounts.

Primarily, the individual must have been adversely financially impacted by the COVID-19 pandemic.

This could be through a job loss, a reduction in work hours, an inability to work due to a lack of childcare, or a diagnosed case of COVID-19 for the individual or their spouse.

Rules for CARES Act 403(b) Withdrawals

For eligible individuals, the CARES Act allows withdrawals of up to $100,000 from their 403(b) accounts without the typical 10% early withdrawal penalty for those under 59½.

Furthermore, the Act also provides an extended repayment period of three years from the day after the distribution was received. It's important to note, however, that this provision was time-bound and applied to withdrawals made in 2020.

Applying for a CARES Act 403(b) Withdrawal

The process for making a withdrawal under the CARES Act's provisions requires several steps. It begins with contacting the institution managing your 403(b) account to request a withdrawal and verifying your eligibility.

Initiating a Withdrawal

Typically, the process starts with a withdrawal request to the plan provider, either online or by phone. The provider will provide a form that asks for various details, including the withdrawal amount and the reason for withdrawal.

Confirming Eligibility

Not everyone can avail of a CARES Act 403(b) withdrawal. The eligibility criteria are quite specific. The individual must have faced adverse financial consequences due to the COVID-19 pandemic, either directly or indirectly.

Job loss, decrease in work hours, inability to work due to lack of childcare, or a COVID-19 diagnosis for the individual or their spouse could qualify as such consequences.

Necessary Documentation and Verification Process

To verify eligibility, the plan provider may require documentation demonstrating the financial impact of the COVID-19 pandemic.

This could be a termination or furlough notice, pay stubs showing reduced hours, or a doctor's note in cases of illness. The specific documentation required may vary by provider and situation.

Applying for a Coronavirus Aid, Relief, and Economic Security 403(b) Withdrawal

Financial and Tax Implications of a CARES Act 403(b) Withdrawal

One of the key benefits of a CARES Act withdrawal is the potential to avoid or delay some of the tax consequences typically associated with an early retirement plan withdrawal. However, it's essential to understand these implications fully.

Income Tax Implications

While the 10% penalty for early withdrawal is waived under the CARES Act, income taxes on the withdrawal amount are not.

However, the Act provides an option to spread the income tax owed over a three-year period, starting from the year of distribution. Moreover, if the individual can repay the withdrawal amount within three years, they can claim a refund for taxes paid

Impact on Future Retirement Savings

While the CARES Act offers temporary relief, it's critical to consider the long-term implications. Withdrawing funds from a 403(b) retirement plan means those funds will not be able to grow tax-free for future retirement needs.

Therefore, despite the immediate benefits, a CARES Act withdrawal can significantly impact your future retirement savings.

Comparing CARES Act 403(b) Withdrawals With Regular 403(b) Withdrawals

To fully appreciate the advantages offered by the CARES Act, it helps to compare it to the standard rules for 403(b) withdrawals.

Differences in Penalty Fees and Tax Implications

Under normal circumstances, withdrawing from a 403(b) account before age 59½ incurs a 10% early withdrawal penalty, in addition to income taxes owed on the amount withdrawn.

In contrast, the CARES Act allows eligible individuals to bypass the 10% penalty and spread the income taxes over three years.

Differences in Repayment Rules and Timeline

Typically, 403(b) withdrawals are not repayable once made. However, the CARES Act offers a unique repayment provision. If individuals can repay their withdrawal within three years, they can not only avoid the tax implications but also replenish their retirement savings.


CARES Act provided an unprecedented lifeline for individuals experiencing financial hardships due to COVID-19 by permitting penalty-free 403(b) withdrawals.

This provision, exclusive to 2020, allowed eligible individuals access to their retirement savings without the typical 10% early withdrawal penalty, offering added flexibility to spread the income tax over three years.

However, the potential long-term impact on retirement savings necessitates careful deliberation. Furthermore, navigating the application process requires knowledge about the eligibility criteria and appropriate documentation for verification.

While the Act indeed provided immediate relief during an unpredictable crisis, its implications on future financial stability should be thoroughly considered.

The Act underscores how legislative measures can help fortify financial resilience, particularly during times of uncertainty and distress.

CARES ACT 403(b) Withdrawal 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.

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