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403(B)/ TSA Plans

Withdrawals For Hardship

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TSA's may permit Hardship Withdrawals.

A Hardship Withdrawal is a provision that allows you to withdraw money from your plan due to "an immediate and heavy financial need" for specific reasons.

Unhappily,  TSAs only allow you to make a withdrawal of funds for hardship if you had the account before December 31, 1988, and then only to the maximum of the amount of funds in the account as of that date. Hardship withdrawals are not permitted for accounts started after December 31, 1988 or for moneys deposited after December 31, 1988 for accounts opened prior to that date.

"Hardships" include:

  • Medical expenses 
    • Medical expenses in excess of  the threshold for deductibility. The threshold for the itemized deduction for unreimbursed medical expenses is 10% of the taxpayer’s Adjusted Gross Income (AGI). However, in the years 2013–2016, if either the taxpayer or the taxpayer’s spouse has turned 65 before the close of the tax year, the threshold is 7.5% of AGI. In 2017 the 10% threshold will apply to all taxpayers. Since, by definition, you exceed the threshold over which medical expenses can be deducted, the tax savings from the medical expense deductions may help offset the additional taxes due from the distribution.
  • Purchase of a primary residence: 
    • As with an IRA account, you can withdraw up to $10,000 without penalty for the purchase of a primary residence - the place where you will live most of the time, as opposed to a vacation or second home.  A withdrawal to purchase a primary residence is allowed only once in a lifetime. (To learn more about IRAs, see: IRA)
  • To avoiding eviction from your home
    • You will automatically be granted a hardship withdrawal if the money is used to avoid eviction. However, a hardship withdrawal made for this reason does not avoid the 10% premature distribution penalty.
  • Payment of one-year's college tuition and expenses 
    • The hardship rules allow you to withdraw an amount equal to one-year's college tuition and expenses.

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