Tax rules for 403(b) plans vary depending on whether your contributions are made on a pre-tax or Roth basis. Here’s an overview of how contributions and withdrawals may affect your taxes.

403(b) Plans and Tax Treatment

Pre-tax 403(b) contributions generally grow tax-deferred, meaning you typically don’t pay taxes until you withdraw the money, which is then taxed as ordinary income. If your plan offers designated Roth contributions, they are made with after-tax dollars, and qualified distributions are generally tax-free.

You generally may begin taking withdrawals without the 10% additional tax after age 59½. Certain distributions taken before age 59½ may also qualify for an exception. Your plan’s distribution rules determine when you are eligible to withdraw funds.

Required minimum distributions (RMD) generally begin at age 73 for people born from 1951 through 1959 and at age 75 for people born in 1960 or later. If you are still working, your plan may allow you to delay RMDs until retirement. Designated Roth accounts in 403(b) plans are not subject to lifetime RMDs while the original account owner is alive, although beneficiaries are subject to RMD rules.

If you’d like to understand what you need to withdraw in retirement, see our RMD calculator.

403(b) Plans and Filing Federal Taxes

You generally don’t need to report your 403(b) plan contributions separately on your federal tax return. Your employer reports them on your Form W-2.

Pre-tax contributions generally reduce the income subject to federal income tax in the year they are made. When withdrawn, pre-tax contributions and their associated earnings are generally taxed as ordinary income. Designated Roth contributions do not reduce your current taxable income, but qualified Roth distributions are generally tax-free.

403(b) and State Income Tax

State tax treatment of 403(b) contributions and withdrawals varies. Depending on where you live, your state may treat retirement contributions or distributions differently from the federal government. Consult your state tax authority or a qualified tax professional for information about the rules that apply to you.

403(b) Tax on Early Withdrawal

The taxable portion of a distribution taken before age 59 1/2 generally may be subject to a 10% additional federal tax, in addition to applicable income taxes. Exceptions may apply based on factors such as your age, employment status or the reason for the distribution.

403(b) Taxes at Retirement

Withdrawals of pre-tax contributions and their associated earnings are generally subject to federal income tax. Qualified distributions from a designated Roth account are generally tax-free.

State income taxes may also apply, depending on where you live and how that state treats retirement income. Because tax rules and individual circumstances vary, consider consulting a qualified tax professional before taking a distribution.