In general, a distribution from your Roth 403(b) account is qualified only if it’s made after the end of a five-year waiting period, and the payment is made after you turn 59½, become disabled, or die. If your distribution is nonqualified, then you’re deemed to receive a pro-rata portion of your tax-free Roth contributions and your taxable earnings. Your employer’s contributions are always made on a pretax basis, even if they match your Roth contributions. That is, your employer’s contributions, and any investment earnings on those contributions, are always taxable to you when you receive a distribution from the plan. If you receive a payment from your 403(b) account before you turn 59½ (50 or 55 in certain cases), the taxable portion may also be subject to a 10% early distribution penalty, unless an exception applies. WHEN CAN I ACCESS MY MONEY? In general, you can’t withdraw your elective deferrals from your 403(b) until you reach age 59½, become disabled, or terminate employment (deferrals to annuity contracts prior to 1989 aren’t subject to these restrictions). Some plans allow you to make a withdrawal if you have an immediate and heavy financial need (“hardship”), but this should be a last resort. Your withdrawal will be subject to regular income taxes and a possible 10% penalty tax. If your plan allows after-tax (non-Roth) contributions, your plan can let you withdraw these dollars at any time. Employer contributions to 403(b) custodial accounts are subject to similar withdrawal restrictions. But employer contributions and pre- 1989 deferrals to 403(b) annuity contracts are subject to somewhat more lenient distribution rules. Check with your plan administrator for your plan’s specific rules. If your plan permits loans, you may be able to borrow up to one-half of your vested 403(b) account balance (to a maximum of $50,000) if you need the money. WHAT HAPPENS WHEN I TERMINATE EMPLOYMENT? Generally, you forfeit all employer contributions that haven’t vested. “Vesting” means that you own the contributions. Your plan may require up to six years of service before you’re fully vested in employer contributions, although some plans have much faster vesting schedules. (Your own contributions are always 100% vested.) You can generally leave your money in your 403(b) account, transfer it to a new 403(b) account, roll your dollars over to an IRA or to another employer’s retirement plan, or take a distribution. 2 WHAT ELSE DO I NEED TO KNOW? You must begin taking distributions (“required minimum distributions,” or RMDs) from your 403(b) account after you reach age 70½ (or after you terminate employment, if later). (The RMD rules don’t apply to contributions made prior to 1987.) If your employer offers 403(b)s from various vendors, you may be able to transfer your assets from one contract to another while you’re still employed. This can be helpful if you’re dissatisfied with a particular vendor’s investment offerings. Your 403(b) account is fully protected from creditors under federal law in the event of your bankruptcy. If your plan is covered by ERISA, then your account is generally protected from all of your creditors’ claims. Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2019. Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable – we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. Depending on your income, you may be eligible for an income tax credit of up to $1,000 for amounts contributed to a 403(b) plan. While your pretax elective deferrals aren’t subject to income tax when made, they are subject to FICA tax. Your Social Security benefits are not affected by your decision to make pretax contributions to your account. 1 If you have both a traditional IRA and a Roth IRA, your combined contributions to both cannot exceed $6,000 ($7,000 if age 50 or older) in 2019. 2 When considering a rollover, to either an IRA or to another employer’s retirement plan, you should consider carefully the investment options, fees and expenses, services, ability to make penalty-free withdrawals, degree of creditor protection, and distribution requirements associated with each option.
To explore how the preceding article could potentially impact your investments, please contact a Commerce Trust advisor 1-855-295-7821 | commercetrustcompany.com
Wealth | Investments | Planning Commerce Trust Company
Commerce Trust Company is a division of Commerce Bank. PC1375
Made with FlippingBook - Online magazine maker