403(b) withdrawal rules
Last updated August 2026
Short answer
The tax rules match a 401(k) closely. The differences that cost money are in the contracts the plan is invested through.
When money can come out
At 59.5, on separation from service, on disability or death, on plan termination, and through a hardship distribution where the plan allows one.
Some plans permit in-service distributions of certain contribution types before 59.5, which varies by plan document rather than by law.
Everything withdrawn is ordinary income in the year received, including from a pre-tax balance funded decades earlier.
The 10% additional tax and its exceptions
Before 59.5, an extra 10% generally applies on top of income tax.
Exceptions include separation from service in or after the year you turn 55, disability, death, substantially equal periodic payments, unreimbursed medical expenses above a threshold, an IRS levy, qualified birth or adoption expenses, and certain disaster distributions.
Each has conditions, and failing one reinstates the tax retroactively, which is why the substantially equal payments route in particular needs care.
The rule of 55, and why it argues against rolling
Leaving your employer in or after the year you turn 55 unlocks penalty-free access to that plan.
Rolling the balance into an IRA immediately destroys that access, because IRAs have no equivalent provision before 59.5.
Anyone retiring in their late fifties should decide about rollovers after checking whether they might need the money before 59.5.
Try it in Walnut
Walnut connects to brokerage accounts and analyses what you hold, including an IRA a workplace balance has been rolled into.
Required distributions from 73
The amount is your prior year-end balance divided by an IRS life expectancy factor.
Workplace plans are generally calculated and taken separately per plan rather than aggregated the way IRAs are, so three old accounts mean three obligations.
A still-working exception lets many plans defer distributions past 73 for current employees who are not 5% owners, and it applies only to that employer's plan.
Surrender charges
Annuity contracts commonly impose a charge on amounts withdrawn or transferred within a set number of years, sometimes on a declining scale.
The charge applies to a rollover as much as to a cash withdrawal, so it reduces the balance that reaches the new account.
The contract states the schedule. Waiting for a surrender period to end is sometimes worth more than the fee saving from moving early.
Loans
Where the plan allows them, loans are usually limited to the lesser of $50,000 or half the vested balance and repaid over five years.
A loan is not a distribution and is not taxed while it is being repaid on schedule.
Leaving the employer with one outstanding generally accelerates repayment, and an unpaid balance becomes a taxable distribution at a point when income has often just stopped.
Hardship distributions
Plans may permit them for defined needs such as medical costs, purchase of a principal residence, tuition or avoiding eviction.
They are taxable, and generally carry the 10% additional tax unless a separate exception applies, so they solve a cash problem by creating a tax one.
Because the amount is limited to the need plus taxes, and the paperwork is real, a hardship distribution is a last resort rather than an access strategy.
Sources
Distribution rules for 403(b) plans are in IRS Publication 571, with the exceptions to the additional tax at Exceptions to tax on early distributions and required distribution rules in the IRS RMD FAQs. Walnut is informational and is not an investment adviser. This guide is educational and not personalized tax advice.
FAQ
When can I withdraw from a 403(b)?
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Generally at 59.5, or on separation from service, disability, death, hardship where the plan permits it, or plan termination. Withdrawals are ordinary income, and before 59.5 an additional 10% tax usually applies.
What is the rule of 55?
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Separating from service in or after the year you turn 55 allows penalty-free withdrawals from that employer's plan, though the money is still taxed as income. It applies to the plan you just left, not to an IRA you roll it into, which is a reason not to roll too quickly.
When do required minimum distributions start?
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At 73 under current law. Unlike IRAs, workplace plan distributions generally have to be taken from each plan separately rather than aggregated, so multiple old 403(b) accounts each need attention.
Is there a still-working exception?
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Many plans allow you to delay required distributions past 73 while still employed by that sponsor, provided you do not own 5% or more of the employer. It applies to that plan only, not to IRAs or to old plans from previous jobs.
What about surrender charges?
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Annuity contracts inside 403(b) plans frequently carry surrender charges for a period of years, deducted from any amount you move or withdraw. They are stated in the contract and are the single most expensive surprise in this plan type.
Can I take a loan?
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If the plan permits, generally up to the lesser of $50,000 or half your vested balance. Leaving the employer with a loan outstanding typically means repaying it quickly or having the balance treated as a taxable distribution.
What are the exceptions to the 10% additional tax?
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They include separation from service at 55 or later, disability, death, substantially equal periodic payments, unreimbursed medical expenses above a threshold, qualified birth or adoption, IRS levies, and certain disaster and emergency distributions.
Should I roll it to an IRA when I leave?
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It depends. An IRA gives more investment choice and simpler required distributions, while the plan may offer institutional pricing, the rule of 55 and stronger creditor protection. Surrender charges belong in that calculation too.
Can I take a hardship distribution?
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If the plan permits it, for defined needs such as medical costs, buying a principal residence, tuition or avoiding eviction. It is taxable and generally carries the 10% additional tax, so it converts a cash problem into a tax one.