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Practice Management

Tech Talk: Withdrawals from 403(b)s Before Age 59½

Q. You have a client who worked with one school district for 10 years and set up a 403b account. The client left that job at age 55 to work in another district, and established a 403(b) account through that employer as well. The client will retire at age 58. 

Would withdrawals from both plans be excused from the 10% pre-age 59½ penalty, or would that be possible for withdrawals from only the 403(b) at the last place the employee worked? The employee would like to keep the accounts separate to avoid surrender charges and to have more loan availability in the two rather than combining the two.

A. The accounts must be kept separate if they are under two different plans and two different employers. However, if the employee rolled over the amounts from the first 403(b) plan (the employee has separated from service in changing jobs, and therefore has a distributable event), the rollover monies in the plan from the second employer would then be subject to the second plan rules and all monies would not be subject to the 10% penalty.