Using Your 403b To Pay For College
| A 403b plan is a retirement savings plan and only those who are working for non-profit organizations and educational institutes are offered this plan. Therefore, if you are a doctor, nurse, teacher, professor, librarian, school administrator, school personnel, researcher or minister, you can avail of a 403b retirement savings plan.
You decide the amount you want to contribute to this plan and your employer deducts the amount from your wages before taxes. The money in the account grows tax-deferred and this deferral is also extended to capital gains, interest, and dividends. You have to pay federal and state taxes once you withdraw the money from the 403b account.
You can withdraw money from a 403b account under one of the following circumstances:
- You have separated from your employer
- You have attained the age of 59 1/2 years
- You are experiencing severe financial hardship
- You have become disabled
Many people want to use the money from their 403b retirement savings plan to pay for their children’s college education. You must be warned that if you withdraw money to pay for college education from your plan before you reach the age of 59 1/2 years, you will have to pay a 10 percent penalty for early withdrawal. In addition, the amount you withdraw will become taxable and you will have to pay both federal and state taxes.
There is no way you can roll over the money from this account to pay for your children’s college education, and if you withdraw money from the account there is no avoiding paying taxes in addition to the penalty.
The only way you can use your 403b account for paying for college is to roll the money into an IRA. In an IRA, you do not have to pay the 10 percent penalty if the money is used for higher education. However, you will still have to pay taxes.
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