Can I Take Money Out Of My 403(b) To Pay Off Debt?
Maybe you’re struggling with debt right now. Maybe you’re just annoyed with the high interest-rate your credit card provider charges you every year, so you want to pay off your debt. Then you remember you have a 403(b) retirement account and the money is just sitting there. Better to take advantage of it, you think?
“Can I take money out of my 403(b) to pay off debt?” The short answer is yes. But is it worth it? Should you even do it? Let’s explore that in this article.
403(b) Loan Vs. Withdrawal: What’s the Difference?
There are two ways you can get money out of your 403(b) retirement plan: loan or withdrawal. The loan must be paid back to your retirement account and is not taxed as long as you keep up with the repayment.
You can withdraw from your 403(b) retirement account when you reach 59 ? years old without penalties. However, an early withdrawal before that age is subject to a 10 percent income tax of the amount withdrawn. Retirement withdrawals are considered income because the contributions and growth are tax-deferred.
You can also take a hardship withdrawal when you have a dire need for financial support and you can prove your case. In that case, the loan is limited to the amount that would satisfy your financial need. What circumstances are acceptable depend on the plan. For example, your 403(b) plan must specify that hardship withdrawals are allowed for medical expenses and funeral costs only. Big purchases, such as a home, or education expenses are not valid criteria. Your employer will determine if your dire financial needs are valid based on facts and circumstances. (more…)
