403b early withdrawal question
I’ve tried to find the answer to this question online and have been unsuccessful. Any help would be greatly appreciated.
I have a 403b with funds in the TIAA “traditional” account. I have been instructed that this money can only be received in a series of 10 payments. I am 57 years old, and would like to begin this payout if possible.
My question is, does receiving the payments over 10 years allow the distributions to avoid the 10% early withdrawal penalty, or do I need to wait until age 59 1/2 to begin the payout?
Thanks so much!
Permalink Submitted by Alan Spross on Wed, 2010-09-08 18:23
if you separated from service in or after the year you turned 55, distributions directly from the plan are penalty free.
But if not, they are subject to early withdrawal penalties until 59.5 because the payment of the entire balance of the plan over a period less than your life expectancy does not meet the definition of substantially equal periodic payments. If you are stuck with this option, at least see if in the year you reach 59.5 the distribution can be done AFTER reaching 59.5. The 10 year requirement also makes these distributions NOT eligible for rollover. If they were issued for 9 years or less, you would have had the option to roll over any amounts that you did not need, but 10 years (or longer) eliminates that option as well.
if you were able to have the entire plan balance directly rolled over to an IRA, then you could start a 72t plan using the IRA balance. That plan would have to last for 5 years in your case.
If you have any other source of funds including a loan until 59.5, you would be able to hold off starting the distributions until then and eliminate the penalty. Also, check to see if you have any other penalty exceptions such as high medical costs, health insurance if you have collected UC for 12 weeks, higher education costs etc.
Permalink Submitted by Jason Frank on Wed, 2010-09-08 18:51
Thank you so much for your help. It is very much appreciated!