403(b) exemption from 10% penalty tax after 55?
Hi,
I am 58 and just retired as a public school teacher. I have a 403(b) account into which the school allowed me to defer part of my salary. If I withdraw money now, I am confused whether I would be exempt from the 10% penalty tax. I thought I would be exempt, but the following information leads me to question whether I am exempt or if I need to wait until 59-1/2:
“403(b) plans sponsored by governmental and public education employers are exempt from ERISA.”
“1099-R Distribution Code 2: A distribution from a qualified retirement plan after separation from service in
or after the year the participant has reached age 55″
I am wondering if my 403(b) can still be a “qualified retirement plan” if it is exempt from ERISA. I understand that 457 plans are non qualified and exempt from ERISA, but I heard that 403(b) plans can still be qualified plans yet exempt from ERISA.
TurboTax says
“Qualified retirement plans can include:
A qualified employee plan such as a section 401(k) plan
A qualified employee 403(a) annuity plan
A 403(b) tax-sheltered annuity plan for employees of public schools or tax-exempt organizations
But it says “can include” which is not “for sure” in my opinion.
Bottom line is I am wondering if, based on my retirement after age 55, if I can withdraw money from my 403(b) without a 10% penalty tax.
Thank you.
Permalink Submitted by Alan - IRA critic on Wed, 2018-06-20 03:04
The penalty exception applies whether the 403b is an ERISA plan or not. The Sec 72t penalty waiver applies to “qualified plans” per the definition in Sec 4974(c). 4974(c)(3) lists 403b plans so ERISA coverage is not a factor in determining whether a 403b plan qualifies for the penalty exception. All 403b plans qualify.
Permalink Submitted by chris erickson on Wed, 2018-06-20 15:04
Thank you for the reply. That is good news and a relief. Thanks again!