What Are the Rules for Withdrawing Money From a 403(b) Tax-Deferred Retirement Plan?

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The rules for withdrawing money from a 403(b) tax-deferred retirement plan vary by plan, but some allow for a hardship withdrawal or loans, according to the Internal Revenue Service. Plans may also allow withdrawals when the employee reaches age 59 1/2, leaves the employer, develops a disability or dies.

While the IRS allows hardship withdrawals from 403(b) plans, it does not require such disbursements. Such withdrawals require the employer to gather required documentation. If the employer does not gather sufficient evidence for the hardship withdrawal, it must take steps to correct the mistake, as the IRS explains.

If employees take out a loan from the plan, they must pay back the amount within five years, according to the IRS. It requires most employees to make regular payments at least once per quarter. Employees who take a leave of absence or who are in the military may be exempt from payments during the affected period.

Schools, churches and other tax-exempt organizations are usually eligible to establish 403(b) plans, according to the IRS. With these plans, the IRS does not tax contributions until the employee withdraws them. In some instances, the employee is able to roll over the withdrawal into another tax-deferred account to avoid paying taxes on the disbursement.