We got a 1099-R due to a 403B distribution. The employer contributed money since my husband did not need medical insurance. Should it be subject to 10% penalty?

The Investment Bank told him that since he was no longer employed there, that it was his to withdraw and it would not be subject to the 10% penalty. I was not so sure, so just want to check with others. On the Confirmation, they listed the transaction type as Employment Termination and we had Federal and State Taxes withheld. I am wondering if the Distribution Code on the 1099-R is potentially incorrect? Interested in others thoughts.

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1 Best answer

Level 15

Jun 4, 2019 6:48:00 PM

It appears unless he is 59 1/2 he is going to be subject to the 10% penalty.

It is correct it is his to withdraw or rollover to an IRA or another 403(b) account.

I just don't see where the penalty exception would apply.

You may take withdrawals from your before-tax 403(b) account without early withdrawal penalties if you:

Are age 591/2. If allowed in school plan.
Separated from service during, or after, the year in which you turn age 55. (If you returned to work as an employee in the same school district, you may not qualify.)
Separated from service before age 55 and take substantially equal payments for a minimum of five years or age 591/2, whichever is later. Also known as a 72T withdrawal.
Are totally and permanently disabled.
Are the beneficiaries of the account.

All distributions from your before-tax 403(b) account are taxed as regular income.

You may take tax-free withdrawals from your Roth 403(b) account without early withdrawal penalties if you have held the account for five years AND one of the following:

Reached age 591/2. If allowed in school plan.
Are totally and permanently disabled.
Are the beneficiaries of the account.