Hello JO41696,
Thanks for the question regarding your 403b retirement/annuity plan and if you can transfer it to a different type of plan, where you would not have to pay taxes on the distribution.
As you are aware, withdrawals from most types of retirement plans incur income taxes. however, one exception to this rule, is the Roth IRA. You can always withdraw an amount equal to your contributions without paying taxes. Once you reach age 59 1/2, the earnings can come out tax-free as well, as long as the Roth has been established for at least 5 years. There is also not a required minimum distribution from a Roth IRA until the owner, passes away.
Now the 403b annuity plan distribution will be taxed, however the tax you pay on the distribution depends on your tax bracket and whether you made any nondeductible (after-tax) contributions to the plan. If you made such contributions, those wouldn’t be taxed when they came out. For example, if you made $2,000 in after-tax contributions and your retirement account was worth $10,000, then only 80% of your withdrawal would be taxed.
**Note: Most commonly, people do make only deductible (pretax) contributions to their plans, so their entire distribution becomes subject to income tax at their marginal tax rate.
Hopefully this helps!!
Thanks,
Terri
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Terri Lynn
