You’ve contributed to your 403(b) plan faithfully for a number of years. You’re about to retire. Now what? How (or if) you should withdraw that money depends on a number of factors and options available to you.
First of all, you are not required to take all or, in fact, any funds out of your 403(b) account when you retire. If you leave funds in your 403(b) account, they will continue to accumulate until you annuitize them
When you turn 70½, the government decrees you have to start withdrawing funds from your account. There’s a required minimum distribution (RMD) that you must take annually, which is based on your age and the age of your spouse (if any). Gradually increasing with the passing years, it’s determined by dividing the prior year-end value of the retirement account by a distribution period from the one of the IRS’ life expectancy tables. If you fail to take the correct distribution one year, you will be subject to a 50% non-deductible excise tax. Most plan administrators provide for automatic calculation and distribution of RMDs annually.
What to Do: Annuity Option
No matter what type of 403(b) plan you have, you may wish to annuitize some or all of it when you retire. By arranging to receive periodic, fixed payouts, you provide yourself with a guaranteed income stream for life (or some period), no matter how the stock market or the economy performs.
Your annuity doesn’t have to stop when you do; you can bequeath it to someone else. Depending on elections you make or options you choose (or do not choose), the beneficiary may be subject to a gift tax upon your death. If, however, it’s a joint and survivor annuity, where only you and your spouse have the right to receive payments, the annuity will likely qualify for the unlimited marital deduction, according to the IRS.
By: Joshua R Greene
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