What is the tax status of withdrawals from a 403(b) plan?

Withdrawals from a 403(b) plan are taxed as ordinary income, which means that when you take distributions from your 403(b), those amounts are added to your taxable income for the year and will be subject to the same income tax rates as your regular income. This taxation applies regardless of your age when you make the withdrawal, provided you are not subject to early withdrawal penalties.

It's important to understand that a 403(b) plan is a tax-advantaged retirement savings plan, similar to a 401(k), specifically designed for employees of non-profit organizations, certain public education institutions, and some ministers. Contributions to a 403(b) are made pre-tax, allowing the account to grow tax-deferred until withdrawal. This means that taxes are postponed until you take money out of the account, at which point the withdrawals are treated as ordinary income for tax purposes.

This tax treatment is a fundamental aspect of how retirement plans like the 403(b) encourage individuals to save for retirement while deferring taxes until they withdraw funds, potentially in a lower income tax bracket during retirement.