403(b) at Retirement

After years of hard work, you may be wondering what to do with your 403(b) when you leave your job. Whether you’re nearing retirement or already retired, it’s important to understand your available options. So, how does a 403(b) work when you retire?

Retirement is a major life transition. Knowing how to manage your 403(b) can significantly influence your financial security in retirement. This guide breaks down how a 403(b) functions after you stop working and what steps you can take to make the most of your savings.

What Is a 403(b) Plan?

A 403(b) is a tax-advantaged retirement plan similar to a 401(k), typically offered by public schools, non-profits, religious organizations, and government entities. It lets you set aside part of your income for retirement, often with the added benefit of employer matching.

These plans offer tax-deferred growth—meaning you contribute pre-tax dollars and pay taxes only when you withdraw funds. This structure reduces your taxable income during your working years while helping your money grow more efficiently.

Some plans also offer Roth 403(b) options, allowing you to contribute after-tax dollars. While you’ll pay taxes upfront, qualified withdrawals—including earnings—are tax-free in retirement.

Important Milestones That Can Affect You

Generally, withdrawing from a 403(b) before age 59½ results in a 10% penalty and income taxes. However, there are exceptions, such as the Rule of 55. If you leave your job during or after the year you turn 55, you may take penalty-free withdrawals from that employer’s 403(b), subject to certain conditions.

Keep in mind, this rule only applies to your current employer’s plan—not previous 403(b) accounts. For older accounts, the standard 59½ rule still applies. Once you reach age 73, required minimum distributions (RMDs) kick in, ensuring you begin drawing from the account and paying taxes.

Key Retirement Age Milestones

See table below for a quick summary of age-based withdrawal rules for 403(b) plans:

Age	Action Allowed	Notes
55	Penalty-free withdrawals if you leave your job that year	Rule of 55 applies only to your current employer’s plan
59½	Standard age for penalty-free withdrawals	Applies to all qualified retirement accounts
73	Required Minimum Distributions (RMDs) begin	Required annually by IRS unless account is Roth

How Does a 403(b) Work When You Retire?

As you approach retirement or reach key age milestones, here are your main options for handling your 403(b):

Keep Your Money Where It Is

You can choose to leave your funds in your existing 403(b) plan. If you’re satisfied with the investment performance and fee structure, this could be a simple way to manage your savings. However, you’ll still be required to take RMDs starting at age 73.

Move Your Money Into Another Account

Another option is rolling over your 403(b) into a traditional IRA. This could give you more investment flexibility and potentially lower fees. Consult a financial advisor to ensure the rollover is done properly to avoid triggering taxes.

Alternatively, you could convert your traditional 403(b) into a Roth IRA, paying taxes now in exchange for tax-free withdrawals later. This may make sense if you expect your future tax rate to increase.

Take a Total Distribution From Your Plan

Withdrawing your entire 403(b) balance at once is rarely advisable. Doing so could move you into a higher tax bracket and result in a large tax bill. Most advisors recommend this only for emergencies.

Make Periodic Withdrawals From Your 403(b) Account

You can also take withdrawals as needed, either to supplement your income or meet unexpected expenses. Just be aware that many 403(b) plans require administrator approval for each withdrawal and automatically withhold 20% for federal taxes, regardless of your tax bracket.

Comparison of 403(b) Options at Retirement

See table below for a comparison of potential decisions for handling your 403(b) account:

Option	Pros	Cons
Keep funds in plan	Simple, no immediate tax hit	Limited investment options, RMDs still apply
Roll to IRA	Greater flexibility, potential for lower fees	Must avoid triggering taxes on rollover
Convert to Roth	Tax-free income in retirement	Triggers immediate taxable income
Full distribution	Access to total account balance	Significant tax liability, possible penalties
Periodic withdrawals	Use funds as needed, supports income planning	May be subject to 20% withholding, administrative delays

How Much Income Will You Need for Retirement?

Once you understand your 403(b) options, the next step is figuring out how much income you’ll need to maintain your lifestyle. A financial advisor can help you estimate sustainable withdrawal rates and develop a plan to avoid running out of money.

Many retirees include annuities in their retirement strategy for added peace of mind. An annuity can provide guaranteed lifetime income—even if your account balance runs out—offering security alongside Social Security benefits.

Planning for Your Future Retirement

If you’re still working and have a 403(b) plan, it’s important to start planning now. Whether you keep the money in place, roll it over, convert it, or begin withdrawals, a financial professional can help guide your choices and build a tailored strategy that balances risk, income, and long-term goals.