If withdrawing from a 403b to buy a house - do you pay the 10% penalty?

Question

I know you pay income tax, but do you get out the penalty? And what is the maximum allowed. I have a tiaa-cref 403b, by the way. THANKS!

Answer 1

You'll end up paying the 10% penalty as well as the income tax of nearly 20%, if you withdraw before your retirement age. If you take it out as a loan, you don't pay the tax or penalty as long as you pay it all back within the calendar year.

Answer 2

Yes on the 10% tax (it's not a penalty, but an excise tax as you can get the IRS to waive a penalty). The maximum you can take is dependant upon if you're still employed. I'm guessing that you are...in which case you're allowed to take out only as much as you've put in...have to leave the earnings and employer contributions.

If you've got enough, you should consider taking a loan instead of a withdrawal. The devestating toll that a withdrawal takes against your retirement is staggering! At least you can minimize it with a loan...and you can borrow against the earnings and employer monies with a loan too...often times making it a better source for larger sums. And no you don't have to pay it back within a year. That's outright wrong...if you're borrowing it to buy a principal residence, you actually can take up to 20 years (if you're plan will allow payments that long).

do a search of 401k on here and you'll see a couple or recent responses I've given to people who want to take money from their 401k. Your bank may not like a loan...but they don't give a rats *** about your retirement.

Answer 3

Yes, you pay the penalty.

The exception is only on IRAs and only up to $10,000.

Also, usually you have to quit the job to have access to the 403b or 401k monies.