Fed up with my retirement plan

Question: Can I withdraw my 403 B funds before 59 1/2 years of age? I no longer want to participate. Can I close this account and withdraw my funds???? Charity, Greeneville, TN

Answer: I don't know why you're so unhappy with the plan, but I wouldn't take the money out. You'll pay a 10% penalty on the amount withdrawn plus ordinary income taxes. The combination is a huge hit to your savings.

In general, there are only a few ways to get the money out penaly free before age 59 1/2. Among the main exemptions are: You leave your job and roll over the money into an IRA; you retire before age 55 and make equal periodic payments for five years or until you reach 59 1/2, whichever takes longer; you become diabled; or you take out a loan, although not all plans allow it.

This isn't a comprehensive list, but it gives you an idea ho the rules are written to discourage early withdrawal.

In most cases, a far better strategy is to stop contributing to the plan. When you leave your employer you can roll the savings into a tax-sheltered IRA. Sometimes, the problem is that particpants don't like the fact that their portfolio fluctuates in value. In that case, choose a very conservative investment option (and then you could keep adding to it).

It's hard to save for retirement. I wouldn't toss away the progress you've made to date. Just stop funding the plan and start savings elsewhere. You'll still need to save.

For instance, you could open up an IRA or a Roth-IRA. You could also build up a taxable savings account. An advantage of a taxable savings account is that you can get access to the money without paying a penalty.

Does anyone else have any suggestions?

About the author

Chris Farrell is the economics editor of Marketplace Money.

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