Can I Withdraw From a 403(b) While Still Employed?

You can withdraw from a 403(b) while still employed, but only if your plan document permits it and you fit into one of the categories the IRS recognizes: reaching age 59½, qualifying for a hardship, or meeting one of the newer SECURE 2.0 exceptions. A plan loan is a separate path that avoids taxes if you repay it on schedule. Everything else in a 403(b) is generally locked in until you separate from service.

Withdrawals at Age 59½

Once you turn 59½, federal law lets a 403(b) plan pay you your balance even though you are still working for the sponsoring employer.¹ You do not have to prove a need. You do not have to leave your job. You choose the amount and take the distribution.

The catch is that federal law permits this option; it does not force plans to offer it. Your employer’s written plan document has to actually authorize age-based in-service distributions.² Some plans do. Some don’t. Check the Summary Plan Description or ask the plan administrator before you plan around this option.

What you can pull out at 59½ generally includes your own salary deferrals, employer matching contributions, and employer nonelective contributions, provided those employer amounts are fully vested. Your own elective deferrals are always 100% vested. Employer contributions often follow a vesting schedule tied to years of service, so the account balance you see and the balance you can actually access may not match.

Hardship Distributions Before 59½

If you are under 59½ and your plan permits hardship withdrawals, you can request one by showing an immediate and heavy financial need. The IRS treats the following as safe harbor reasons that automatically qualify:³

Unreimbursed medical expenses for you, your spouse, dependents, or a plan beneficiary.
Costs directly tied to buying your principal residence (mortgage payments don’t count).
Payments needed to avoid eviction from or foreclosure on your primary home.
Tuition, related fees, and room and board for the next 12 months of postsecondary education for you, your spouse, children, dependents, or a beneficiary.
Funeral or burial expenses for you, your spouse, children, dependents, or a beneficiary.
Certain expenses to repair damage to your principal residence.

The amount is limited to what you actually need, which can include the taxes and penalties the withdrawal itself will trigger. You also have to certify that no other reasonable source of money is available, such as insurance proceeds or liquid savings.³ The plan administrator verifies the request and may ask for medical bills, tuition invoices, eviction notices, or similar documentation.

Here is the part people miss: qualifying as a hardship gets the money out of the plan, but it does not remove the tax bill. You still owe ordinary income tax on the distribution, and if you are under 59½ you still owe the 10% early withdrawal penalty unless a separate penalty exception applies.⁴

One 403(b)-specific limit: hardship distributions can come from your elective deferrals, but not from the earnings on those deferrals. That restriction was removed for 401(k) plans but still applies to 403(b) accounts.³ You can keep contributing to the plan right after a hardship withdrawal; the old six-month suspension rule no longer applies.⁵

SECURE 2.0 Withdrawals Without the 10% Penalty

The SECURE 2.0 Act added new penalty-free withdrawal reasons, each optional for the plan to adopt. If your plan has picked them up, you may qualify while still working.

Emergency Personal Expense

Since 2024, plans may allow one penalty-free withdrawal per calendar year for an unforeseeable or immediate financial need, capped at the lesser of $1,000 or your vested balance minus $1,000.⁴ You self-certify the need; no documentation required. Income tax still applies. If you repay the full amount within three years, you can take another one in a later year; if you don’t repay, you’re locked out of this option for three calendar years.

Domestic Abuse Victim

A participant who has experienced domestic abuse by a spouse or domestic partner can withdraw the lesser of $10,000 or 50% of the vested account balance without the 10% penalty.⁴ The withdrawal has to happen within 12 months of the abuse. Self-certification is enough. You have three years to repay the amount to the plan.

Terminal Illness

If a physician certifies a condition expected to result in death within 84 months, distributions escape the 10% penalty.⁴ Get the certification at or before the time of the distribution. Ordinary income tax still applies. Repayment within three years is allowed.

A Plan Loan Instead of a Withdrawal

Before pulling money out and triggering taxes, look at whether your plan offers loans. A 403(b) loan is not a distribution. You are borrowing from your own account and paying yourself back with interest, so no income tax and no early withdrawal penalty apply as long as you follow the repayment schedule.⁶

Federal law caps the loan at the lesser of $50,000 or half your vested balance. If half your vested balance is under $10,000, plans may (but aren’t required to) let you borrow up to $10,000.⁷ Repayment runs five years with at least quarterly payments, with a longer term available if you use the loan to buy your primary home.⁶

Miss payments or fail to repay, and the unpaid balance is treated as a taxable distribution, plus the 10% early withdrawal penalty if you are under 59½.⁶ Not every 403(b) offers loans, so verify with the plan document.

Taxes, the 10% Penalty, and Withholding

Every dollar you pull from a traditional pre-tax 403(b) counts as ordinary income for the year, regardless of age or reason. If you are under 59½, add a 10% additional tax on the taxable portion unless a specific exception applies.⁷

Exceptions that can waive the 10% penalty for a 403(b) distribution include reaching 59½, total and permanent disability, death (for a beneficiary), a series of substantially equal periodic payments, unreimbursed medical expenses above 7.5% of adjusted gross income, distributions under a qualified domestic relations order, an IRS levy on the account, qualified reservist distributions, up to $5,000 per child for a qualified birth or adoption, up to $22,000 for a federally declared disaster, and the SECURE 2.0 categories above. If your distribution qualifies but the plan administrator does not code Form 1099-R correctly, claim the exception yourself on Form 5329 with your tax return.⁴

One other surprise for anyone taking an eligible rollover distribution in cash rather than a direct rollover: federal law requires the plan to withhold 20% for federal income tax, and you cannot opt out.⁸ The withheld tax counts toward your return, but if you later try to roll the full amount to an IRA within 60 days, you have to replace that 20% from other funds or the withheld portion becomes taxable.⁹ A direct rollover avoids the withholding entirely.

How to Request the Withdrawal

Start with the Summary Plan Description. Federal rules require a 403(b) plan to document the material terms of eligibility and distributions in writing, and the SPD is where you confirm which options your employer actually offers.² Then confirm your vested balance, since employer contributions may not be fully yours yet.

Most plans process requests through a third-party administrator or an online participant portal. You’ll pick the distribution category (age-based, hardship, emergency, or loan), enter your bank details, and make a federal withholding election. For a hardship request, have your supporting documentation ready before you file: medical bills, tuition statements, funeral invoices, eviction notices, whatever fits your reason.

Processing usually runs five to ten business days, with electronic deposit landing a few business days after approval. Paper checks take longer. Administrative fees vary by plan and commonly fall between $5 and $50 per transaction.

1
Office of the Law Revision Counsel. 26 U.S.C. 403 – Taxation of Employee Annuities
2
Internal Revenue Service. Written Plan Document Requirement for 403(b) Plans
3
Internal Revenue Service. Retirement Topics – Hardship Distributions
4
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
5
Internal Revenue Service. Retirement Plans FAQs Regarding Hardship Distributions
6
Internal Revenue Service. Retirement Topics – Plan Loans
7
Office of the Law Revision Counsel. 26 U.S.C. 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
8
Office of the Law Revision Counsel. 26 U.S.C. 3405 – Special Rules for Pensions, Annuities, and Certain Other Deferred Income
9
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions