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403(b) Plan Withdrawals & Disbursements

The following information should help you navigate the new rules, got effective on January 1, 2009, that affect requests for disbursements, loans and withdrawals From your 403(b) plan(s).

HARDSHIP WITHDRAWALS – Your employer’s Plan Document will stipulate on whether or not hardship withdrawals are allowed. When they are allowed, the new IRS rules no longer allow self-certification for a hardship withdrawal.

Under the new regulations approval of hardship withdrawals can be at the discretion of the Plan Administrator who reviews each request on its individual facts and circumstances.

Hardship withdrawals, when available, may be approved when the participant has no other resources available, including the possibility of taking a loan. You will also be prohibited from contributing to a 403(b) for the next six months.

Hardship withdrawals can be made for:

  • Expenses for medical care that would be deductible from the participant's federal income taxes under Internal Revenue Code Section 213(d), determined without regard to whether the expenses exceed 7.5% of the participant's adjusted gross income.
  • Costs directly related to the purchase of a principal residence for the participant excluding mortgage payments.
  • Payment of tuition, related educational fees, and room and board expenses for up to the next 12 months of post-secondary education for the participant, the participant's spouse, children, or dependent.
  • Payments necessary to prevent the eviction from or foreclosure on a mortgage on the participant's principal residence.
  • Payments for burial or funeral expenses for the participant's deceased parent, spouse, children or dependents (as defined in Section 152 of the Internal Revenue Code)
  • Expenses for the repair of damage to the participant's principal residence that would qualify as a casualty deduction from the participant's federal income taxes under IRC Section 165, determined without regard to whether the loss exceeds 10% of adjusted gross income.


Withdrawals are subject to ordinary income taxation in the year withdrawn and are not exempt from an IRS 10% penalty. Consulting a tax professional before making a hardship withdrawal is highly recommended.

Prior to the final regulations being released, participants could request distributions directly from their investment providers without plan sponsor involvement or approval. 403(b) programs must now have a written Plan Document which contains all material terms and conditions of the Plan, including eligibility, benefits, investment alternatives, and the time and form of distributions.

The final regulations state that as an employer-sponsored plan, all disbursements to participants under a school’s 403(b) plan must be centrally coordinated. The IRS will no longer allow plan participants to authorize their own distributions without review and approval by their plan administrator who must determine:

  • When the employee’s circumstances qualify for taking a hardship withdrawal, distribution, or a loan;
  • When a transfer is permitted under the terms of the 403(b) plan and IRS rules; and
  • When a domestic relations order has sufficient information to enable benefits to be set aside for an alternate payee under a Qualified Domestic Relations Order (QDRO).


Each employer will either have a Plan Administrator or will be self-administering their plan. You must comply with your plan when requesting a disbursement, loan or withdrawal. Contact your 403(b) Plan Administrator or investment provider for direction...as they will have essential information regarding availability or requirements for taking disbursements, loans or withdrawals from your 403(b) account(s) and how to obtain and/or complete the paperwork to begin the process.

Your employer plan or the provider may restrict or prohibit loans or hardship withdrawals, or restrict when you can obtain funds from your account. Your employer’s plan document is the final word on whether or not a provision is available to you and when it is available, and then …the loan, withdrawal or disbursement must also comply with your providers rules.

DISBURSEMENTS – Any request for funds must be accompanied by the appropriate paperwork which starts with forms obtained from your Plan Administrator. Once completed with accompanying requirements, paperwork must be approved by the Plan Administrator prior to it being forwarded to the provider for disbursement of funds.

As there is now an additional step in the process the timeline for the receipt of the requested funds has expanded and many participants are experiencing delays. Participants should prepare themselves for delays by initiating their paperwork as early as possible once they become aware of the need of funds.

_______________________________________________________________________

Moti Gur is a Registered Representative with and securities offered through Financial Network Investment Corp and Cetera Adviser Networks LLC.
A registered broker/dealer, Investment advisor and member FINRA/ SIPC
3807 Wilshire Blvd, Suite 1040 Los Angeles, CA 90010 213-385-6237
http://www.financialnetwork.com

 

 
     
   
   
 
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