Generally, a distribution cannot be made from a 403(b) account until the employee:
Reaches age 59½,
Has a severance from employment,
In the case of elective deferrals, 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.
Retired public safety officers.
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.
Distribution for active reservist.
The 10% penalty for early withdrawals 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.
Minimum Required Distributions
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 70½, or the calendar year in which you
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.
No Special 10-Year Tax Option
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.
Transfer of Interest in 403(b) Contract
If you transfer all or part of your interest from a 403(b) contract to another 403(b) contract (held in the same plan),
the transfer is tax free, and is referred to as a contract exchange. This was previously known as a 90-24 transfer. A contract
exchange is similar to a 90-24 transfer with one major difference. Previously, you were able to accomplish the transfer without
your employer’s involvement. After September 24, 2007, all such transfers are accomplished through a contract exchange requiring
your employer’s involvement. In addition, the plan must provide for the exchange and the transferred interest must be subject
to the same or stricter distribution restrictions. Finally, your accumulated benefit after the exchange must be equal to what
it was before the exchange.
Transfers that do not satisfy this rule are plan distributions and are generally taxable as ordinary income.
You may also transfer part or all of your interest from a 403(b) plan to another 403(b) plan if you are an employee
of (or were formerly employed by) the employer of the plan to which you would like to transfer. Both the initial plan and
the receiving plan must provide for transfers. Your accumulated benefit after the transfer must be at least equal to what
it was before the transfer. The new plan’s restrictions on distributions must be the same or stricter than those of the original
Tax-free transfers for certain cash distributions.
A tax-free transfer may also apply to a cash distribution of your 403(b) account from an insurance company that is
subject to a rehabilitation, conservatorship, insolvency, or similar state proceeding. To receive tax-free treatment, you
must do all of the following:
Withdraw all the cash to which you are entitled in full settlement of your contract rights or, if less, the maximum permitted
by the state.
Reinvest the cash distribution in a single policy or contract issued by another insurance company or in a single custodial
account subject to the same or stricter distribution restrictions as the original contract not later than 60 days after you
receive the cash distribution.
Assign all future distribution rights to the new contract or account for investment in that contract or account if you received
an amount that is less than what you are entitled to because of state restrictions.
In addition to the preceding requirements, you must provide the new insurer with a written statement containing all
of the following information:
The gross amount of cash distributed under the old contract.
The amount of cash reinvested in the new contract.
Your investment in the old contract on the date you receive your first cash distribution.
Also, you must attach the following items to your timely filed income tax return in the year you receive the first
distribution of cash.
A copy of the statement you gave the new insurer.
A statement that includes:
The words ELECTION UNDER REV. PROC. 92-44,
The name of the company that issued the new contract, and
The new policy number.
Direct trustee-to-trustee transfer.
If you make a direct trustee-to-trustee transfer, from your governmental 403(b) account to a defined benefit governmental
plan, it may not be includible in gross income.
The transfer amount is not includible in gross income if it is made to:
Purchase permissive service credits, or
Repay contributions and earnings that were previously refunded under a forfeiture of service credit under the plan, or under
another plan maintained by a state or local government employer within the same state.
For distributions beginning after December 31, 2006, after-tax contributions can be rolled over between a 403(b) plan
and a defined benefit plan, IRA, or a defined contribution plan. If the rollover is to or from a 403(b) plan, it must occur
through a direct trustee-to-trustee transfer.
Permissive service credit.
A permissive service credit
is credit for a period of service recognized by a defined benefit governmental plan only if you voluntarily contribute to
the plan an amount that does not exceed the amount necessary to fund the benefit attributable to the period of service and
the amount contributed is in addition to the regular employee contribution, if any, under the plan.
A permissive service credit may also include service credit for up to 5 years where there is no performance of service,
or service credited to provide an increased benefit for service credit which a participant is receiving under the plan.
Check with your plan administrator as to the type and extent of service that may be purchased by this transfer.
You can generally roll over tax free all or any part of a distribution from a 403(b) plan to a traditional IRA or a non-Roth
eligible retirement plan, except for any nonqualifying distributions, described later. You may also roll over any part of
a distribution from a 403(b) plan by converting it through a direct rollover, described below, to a Roth IRA. Conversion amounts
are generally includible in your taxable income in the year of the distribution from your 403(b) account. See Publication
590 for more information about conversion into a Roth IRA.
A participant is required to roll over distribution amounts received within 60 calendar days in order for the amount to be
treated as nontaxable. Distribution amounts that are rolled over within the 60 days are not subject to the 10% early distribution
Rollovers to and from 403(b) plans.
You can generally roll over tax free all or any part of a distribution from an eligible retirement plan to a 403(b)
plan. Beginning January 1, 2008, distributions from tax-qualified retirement plans and tax-sheltered annuities can be converted
by making a direct rollover into a Roth IRA subject to the restrictions that currently apply to rollovers from a traditional
IRA into a Roth IRA. Converted amounts are generally includible in your taxable income in the year of the distribution from
your 403(b) account. See Publication 590 for more information on conversion into a Roth IRA.
If a distribution includes both pre-tax contributions
and after-tax contributions, the portion of the distribution that is rolled over is treated as consisting first of pre-tax
amounts (contributions and earnings that would be includible in income if no rollover occurred). This means that if you roll
over an amount that is at least as much as the pre-tax portion of the distribution, you do not have to include any of the
distribution in income.
For more information on rollovers and eligible retirement plans, see Publication 575.
If you roll over money or other property from a 403(b) plan to an eligible retirement plan, see Publication 575 for information
about possible effects on later distributions from the eligible retirement plan.
Hardship exception to rollover rules.
The IRS may waive the 60-day rollover period if the failure to waive such requirement would be against equity or good
conscience, including cases of casualty, disaster, or other events beyond the reasonable control of an individual.
To obtain a hardship exception, you must apply to the IRS for a waiver of the 60-day rollover requirement. You apply
for the waiver by following the general instructions used in requesting a letter ruling. These instructions are stated in
Revenue Procedure 2014-4, 2014-1 I.R.B. 125 available at www.irs.gov/irb/2014-1_IRB/ar08.html
, or see the latest annual update. You must also pay a user fee with the application. The user fee for a rollover that is
less than $50,000 is $500. For rollovers that are $50,000 or more, see Revenue Procedure 2014-8, 2014-1 I.R.B. 242 available
, or see the latest annual update.
In determining whether to grant a waiver, the IRS will consider all relevant facts and circumstances, including:
Whether errors were made by the financial institution;
Whether you were unable to complete the rollover due to death, disability, hospitalization, incarceration, restrictions imposed
by a foreign country, or postal error;
Whether you used the amount distributed (for example, in the case of payment by check, whether you cashed the check); and
How much time has passed since the date of distribution.
For additional information on rollovers, see Publication 590.
Eligible retirement plans.
The following are considered eligible retirement plans.
If the distribution is from a designated Roth account, then the only eligible retirement plan is another designated Roth account
or a Roth IRA.
You cannot roll over tax free:
Minimum required distributions (generally required to begin at age 70½),
Substantially equal payments over your life or life expectancy,
Substantially equal payments over the joint lives or life expectancies of your beneficiary and you,
Substantially equal payments for a period of 10 years or more,
Hardship distributions, or
Corrective distributions of excess contributions or excess deferrals, and any income allocable to the excess, or excess annual
additions and any allocable gains.
Rollover of nontaxable amounts.
You may be able to roll over the nontaxable part of a distribution (such as your after-tax contributions) made to
another eligible retirement plan, traditional IRA, or Roth IRA. The transfer must be made either through a direct rollover
to an eligible plan that separately accounts for the taxable and nontaxable parts of the rollover or through a rollover to
a traditional IRA or Roth IRA.
If you roll over only part of a distribution that includes both taxable and nontaxable amounts, the amount you roll
over is treated as coming first from the taxable part of the distribution.
Direct rollovers of 403(b) plan distributions.
You have the option of having your 403(b) plan make the rollover directly to a traditional IRA, Roth IRA, or new plan.
Before you receive a distribution, your plan will give you information on this. It is generally to your advantage to choose
this option because your plan will not withhold tax on the distribution if you choose it.
Distribution received by you.
If you receive a distribution that qualifies to be rolled over, you can roll over all or any part of the distribution.
Generally, you will receive only 80% of the distribution because 20% must be withheld. If you roll over only the 80% you receive,
you must pay tax on the 20% you did not roll over. You can replace the 20% that was withheld with other money within the 60-day
period to make a 100% rollover.
Voluntary deductible contributions.
For tax years 1982 through 1986, employees could make deductible contributions to a 403(b) plan under the individual
retirement arrangement (IRA) rules instead of deducting contributions to a traditional IRA.
If you made voluntary deductible contributions to a 403(b) plan under these traditional IRA rules, the distribution
of all or part of the accumulated deductible contributions may be rolled over if it otherwise qualifies as a distribution
you can roll over. Accumulated deductible contributions are the deductible contributions:
Income allocable to the contributions,
Gain allocable to the contributions, and
Expenses and losses allocable to the contributions, and
Distributions from the contributions, income, or gain.
Excess employer contributions.
The portion of a distribution from a 403(b) plan transferred to a traditional IRA that was previously included in
income as excess employer contributions is not an eligible rollover distribution.
Its transfer does not affect the rollover treatment of the eligible portion of the transferred amounts. However, the
ineligible portion is subject to the traditional IRA contribution limits and may create an excess IRA contribution subject
to a 6% excise tax (see chapter 1 of Publication 590).
Qualified domestic relations order.
You may be able to roll over tax free all or any part of an eligible rollover distribution from a 403(b) plan that
you receive under a qualified domestic relations order (QDRO). If you receive the interest in the 403(b) plan as an employee's
spouse or former spouse under a QDRO, all of the rollover rules apply to you as if you were the employee. You can roll over
your interest in the plan to a traditional IRA or another 403(b) plan. For more information on the treatment of an interest
received under a QDRO, see Publication 575.
Spouses of deceased employees.
If you are the spouse of a deceased employee, you can roll over the qualifying distribution attributable to the employee.
You can make the rollover to any eligible retirement plan.
After you roll money and other property over from a 403(b) plan to an eligible retirement plan, and you take a distribution
from that plan, you will not be eligible to receive the capital gain treatment or the special averaging treatment for the
If you roll over a qualifying distribution to a traditional IRA, you can, if certain conditions are satisfied, later
roll the distribution into another 403(b) plan. For more information, see IRA as a holding account (conduit IRA) for rollovers to other eligible plans
in chapter 1 of Publication 590.
A nonspouse beneficiary may make a direct rollover of a distribution from a 403(b) plan of a deceased participant
if the rollover is a direct transfer to an inherited IRA established to receive the distribution. If the rollover is a direct
trustee-to-trustee transfer to an IRA established to receive the distribution:
The transfer will be treated as an eligible rollover distribution.
The IRA will be considered an inherited account.
The required minimum distribution rules that apply in instances where the participant dies before the entire interest is distributed
will apply to the transferred IRA.
For more information on IRAs, see Publication 590.
The 60-day period usually allowed for completing a rollover is extended for any time that the amount distributed is
a frozen deposit in a financial institution. The 60-day period cannot end earlier than 10 days after the deposit ceases to
be a frozen deposit.
A frozen deposit is any deposit that on any day during the 60-day period cannot be withdrawn because:
The financial institution is bankrupt or insolvent, or
The state where the institution is located has placed limits on withdrawals because one or more banks in the state are (or
are about to be) bankrupt or insolvent.