Can I Take Money Out Of My 403b

Why it may be better to consolidate your retirement plan accounts

When you change jobs, you have a choice to make concerning your retirement plan account. Do you keep your account balance in a plan or cash out and take the money? According to the Employee Benefit Research Institute, 40% of workers with an account balance of between $1,000 and $5,000 will cash it out.

You may be tempted to do the same and use the money to pay bills or make a big-ticket purchase. But think twice before you take a distribution. Cashing out can cost you a lot.

You lose earning power on that money forever

If you take a distribution from the plan, that money is no longer tax-deferred for your retirement, so the money you took, plus all its future earning potential is lost. This can make a big difference in the amount you're able to save for retirement. Look at the difference it can make when you continue to save, rather than spend, a $5,000 retirement plan balance.

You won't get the entire amount

If you take the money as a plan distribution before age 59½, you'll owe the IRS a 10% early withdrawal penalty. You'll also owe ordinary income tax in the year you receive the distribution. This example shows how taxes and penalties can reduce your distribution amount.

Account balance in prior plan chart

What you can do to maximize your earning potential

Resist the temptation to cash out. Instead, roll over your account balance into your current retirement plan. Consolidating your retirement plan assets may make account management easier and keeps your money working for you until retirement.

Please note that there may be some reasons why you would not want to consolidate accounts, including that you are comfortable with the existing plan(s) and think it is a good one(s) and your new plan offers fewer investment options or investment options that don't meet your needs.

Keep your retirement savings working for you. Take advantage of account consolidation.

1 "Eliminating Friction and Leaks in America's Defined Contribution System," Boston Research Group, April 2013.

2 Income taxes are due on contributions and earnings from pre-tax accounts. Income taxes are not due on earnings from after-tax Roth accounts, provided the account has met the following conditions: 1) five-year holding period, and 2) one of these qualifying events: age 59½, disability, or death. For more information, consult a qualified tax advisor.

3 If your current plan does not allow rollovers in, you also have the option to roll over the money into an IRA, which will preserve the power of tax-deferred potential growth for you.

Please be advised that this document is not intended as legal or tax advice. Accordingly, any advice provided in this document is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. Such advice was written to support the promotion or marketing of the transaction(s) or matter(s) addressed, and you should seek advice based on your particular circumstances from an independent tax advisor.

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