What Are the Rules for Withdrawing Money From a 403(b) Retirement Account Due to Disability?

An individual with a 403(b) retirement plan who becomes disabled can withdraw money from the account without penalty, reports the Internal Revenue Service. The distributed funds are subject to regular income tax. Most plans allow employees to take out money in a lump sum or in periodic payments.

Although most distributions from 403(b) plans before the account holder is 59 1/2 years old are subject to a 10 percent early withdrawal penalty tax, withdrawals because of disability are exceptions to the penalty, according to the Internal Revenue Service. To qualify for a disability waiver of the tax penalty, account holders must prove that due to their mental or physical condition they can no longer perform substantial gainful activity. A doctor must verify that the disability is long-term or is likely to result in death. If the account holder applies for and collects disability payments from Social Security or a private insurance company, this helps provide proof of disability to the Internal Revenue Service, reports Bankrate.

Typically, 403(b) plans are offered to ministers, public safety officers and employees of public schools, colleges and universities, according to the Internal Revenue Service. Because specific details concerning payment of distributions may vary from plan to plan, each plan must provide employees with written programs containing all terms and conditions.