Understanding 403b Withdrawal Rules Do You Always Have to Pay Taxes on Retirement Income

403b withdrawal rules

Discover the ins and outs of 403b withdrawal rules and understand when you may be responsible for paying taxes on your retirement income withdrawals. This informative blog post will help you make informed decisions about your financial future. Don’t miss out on the important information that could impact your money.

Curious about whether you need to pay taxes on your retirement income withdrawals? This blog post explores the 403b withdrawal rules and clarifies when you may be required to pay taxes. Discover the facts and make informed decisions about your financial future.

Dear Liz,
I have a very small amount in my employers 403(b) retirement plan. I am 65 and still working. I withdrew $1,200 in March. What are the 403(b) withdrawal rules? What penalty or taxes would I have to pay on this amount or any other amount I may withdraw? Should I declare it on my 2015 income tax form next year? Do we always have to pay tax for withdrawing our retirement income?
— Ana

Dear Ana,
Not always, but usually.

Youre over 59 1/2, so you dont have to pay federal or state penalties on retirement plan withdrawals. The federal penalty is 10%, and state penalties typically add a few percentage points to that toll.

You do, however, have to pay applicable income taxes. The plan will send you (and the IRS) a Form 1099-R, which is used to report distributions from pensions, retirement plans, annuities and insurance contracts.

The tax you pay on the distribution depends on your tax bracket and whether you made any nondeductible (after-tax) contributions to the plan. If you made such contributions, those wouldnt be taxed when they came out. For example, if you made $2,000 in after-tax contributions and your retirement account was worth $10,000, then only 80% of your withdrawal would be taxed.

Most likely, though, you made only deductible (pretax) contributions to your plan, so your entire distribution would be subject to income tax at your marginal tax rate. If youre in the 25% federal bracket, youll owe Uncle Sam $300.

Withdrawals from most types of retirement plans incur income taxes. An exception is the Roth IRA. You can always withdraw an amount equal to your contributions without paying taxes. Once you reach age 59 1/2, the earnings can come out tax-free as well, as long as the Roth has been established for at least 5 tax years.

What is a 403(b) plan?

Also known as a tax-sheltered annuity, a 403(b) plan is a 401(k)-type plan that is offered to employees by public schools, certain nonprofit organizations and some churches.

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Thanks to Source: https://www.bankrate.com/investing/is-it-wise-to-tap-403b-retirement-plan-to-pay-off-car-loan-and-credit-card-debt


403b withdrawal rules

403b withdrawal rules

403b withdrawal rules