Yes. If you take money out of a traditional 403(b) after age 60, the full withdrawal is taxed as ordinary income at the federal level and in most states that tax income. The good news is that the 10% early withdrawal penalty is gone once you pass 59½, so taxes on 403(b) withdrawals after age 60 come down to your regular income tax rate. For a Roth 403(b), the withdrawal can be entirely tax-free if you also meet a five-year holding rule.
How a Traditional 403(b) Withdrawal Is Taxed
Your contributions went in before taxes were withheld, so the IRS treats every dollar you pull out as income you haven’t paid tax on yet. That includes both what you contributed and everything it earned.1Internal Revenue Service. IRC 403(b) Tax-Sheltered Annuity Plans The plan administrator reports each distribution on Form 1099-R, and you include the amount in your adjusted gross income on your return.2Internal Revenue Service. About Form 1099-R
The withdrawal is taxed at the same marginal rates that apply to wages. For 2026, federal rates range from 10% to 37%, with the top bracket starting above $640,600 for single filers and $768,700 for married couples filing jointly.3Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 Taking a large amount in a single year can push part of your income into a higher bracket than you’d hit by spreading distributions out.
Most states with an income tax will treat the distribution the same way, though a handful exempt some or all retirement income. Check your state’s rules before you commit to a withdrawal schedule.
No 10% Penalty After Age 59½
The federal tax code adds a 10% penalty to distributions taken from a 403(b) before age 59½.4Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts At 60, the penalty is off the table. You still owe ordinary income tax, but there’s no surcharge on top of it.
Roth 403(b) Withdrawals: The Five-Year Rule
A Roth 403(b) is funded with after-tax dollars, so withdrawals can come out completely tax-free, including all the earnings, if the distribution is “qualified.” Two conditions have to be met.5Internal Revenue Service. Retirement Topics – Designated Roth Account
First, you must be at least 59½. At 60, that’s satisfied. Second, you must have held a designated Roth account in the plan for at least five tax years. The clock starts on January 1 of the tax year you first made a Roth contribution to that specific employer’s plan. First Roth 403(b) contribution in 2022? The five-year period runs from January 1, 2022, through the end of 2026.6Internal Revenue Service. Retirement Plans FAQs on Designated Roth Accounts
Unlike Roth IRAs, designated Roth accounts in employer plans track the five-year clock separately for each plan. Rolling a Roth 403(b) from an old employer into a new employer’s Roth 403(b) carries the earlier start date over. Starting fresh at a new employer without a rollover restarts the clock.6Internal Revenue Service. Retirement Plans FAQs on Designated Roth Accounts
If you meet the age requirement but not the five-year rule, the distribution is non-qualified. Your original contributions still come out tax-free. The earnings portion is taxable as ordinary income, though no 10% penalty applies since you’re past 59½.
How the Withdrawal Ripples Into Other Taxes
A 403(b) distribution doesn’t only affect your income tax bracket. It raises your AGI, and a higher AGI can trigger costs elsewhere.
Social Security Benefits
If you’ve started collecting Social Security, a 403(b) withdrawal increases your “combined income” (AGI plus nontaxable interest plus half of your Social Security benefits). Once combined income crosses $25,000 for single filers or $32,000 for joint filers, up to 50% of your benefits become taxable. Above $34,000 (single) or $44,000 (joint), up to 85% are taxable.7Social Security Administration. Must I Pay Taxes on Social Security Benefits These thresholds haven’t been adjusted for inflation since they were set, so even a modest withdrawal can tip you over.
Medicare Premiums
Medicare Part B and Part D premiums are income-tested. If your modified adjusted gross income from two years earlier exceeds certain thresholds, you pay an Income-Related Monthly Adjustment Amount on top of the standard premium.8Medicare.gov. 2026 Medicare Costs A large distribution at 60 can raise your premiums when you enroll at 65, because the Social Security Administration looks back at your income from two years prior. Spreading withdrawals across years can keep you below the IRMAA brackets.
Net Investment Income Tax
The 403(b) distribution itself isn’t subject to the 3.8% Net Investment Income Tax. The IRS excludes 403(b) distributions from the definition of net investment income.9Internal Revenue Service. Questions and Answers on the Net Investment Income Tax But the withdrawal still raises your MAGI. If that pushes you above $200,000 (single) or $250,000 (married filing jointly), the NIIT can apply to your other investment income, such as capital gains, dividends, or rental income.
Withholding and Estimated Payments
How the tax gets collected depends on the type of distribution. If you take an eligible rollover distribution paid directly to you instead of transferred to another retirement account, the plan must withhold 20% for federal income taxes, and you can’t opt out.10Internal Revenue Service. Pensions and Annuity Withholding That 20% counts toward your tax bill, but it may not cover the whole thing, especially if the distribution nudges you into a higher bracket.
For scheduled monthly or quarterly payments, you choose your withholding on Form W-4P.11Internal Revenue Service. About Form W-4P, Withholding Certificate for Periodic Pension or Annuity Payments For nonperiodic lump sums that aren’t eligible rollover distributions, you use Form W-4R.12Internal Revenue Service. About Form W-4R, Withholding Certificate for Nonperiodic Payments and Eligible Rollover Distributions If withholding falls short of your full liability, quarterly estimated payments on Form 1040-ES prevent an underpayment penalty.13Internal Revenue Service. About Form 1040-ES, Estimated Tax for Individuals
The Indirect Rollover Trap
If you’re moving 403(b) money into an IRA or another employer plan, use a direct trustee-to-trustee transfer. The money never touches your hands, nothing is withheld, and nothing is reported as taxable.14Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
An indirect rollover, where the plan cuts you a check and you redeposit it, is riskier. The plan withholds 20% up front. On a $100,000 rollover, you receive $80,000. To complete the rollover tax-free, you must deposit the full $100,000 into the new account within 60 days, covering the $20,000 gap from your own funds. If you can’t, that $20,000 becomes a taxable distribution.10Internal Revenue Service. Pensions and Annuity Withholding You get the withholding back as a refund when you file, but the cash-flow squeeze catches people off guard. Miss the 60-day deadline and the entire distribution becomes taxable income for the year.
Ways to Lower What You Owe
How and when you take the money can change the bill significantly.
- Spread withdrawals across years. Smaller distributions over several low-income years keep more of the money in lower brackets. The years between retirement and required minimum distributions are often the best window.
- Consider Roth conversions before RMDs begin. Converting traditional 403(b) money to a Roth IRA triggers tax in the conversion year, but future withdrawals and growth are tax-free. If your income is temporarily low, the conversion rate may beat what you’d pay later once RMDs and Social Security stack up.
- Coordinate with Social Security timing. Pulling from your 403(b) while delaying Social Security can keep combined income below the taxable-benefits thresholds. Once benefits begin, you may be able to ease off the 403(b).
- Watch IRMAA brackets as you approach 65. A single large distribution at 63 shows up in your MAGI at 65 and can add hundreds of dollars a month to your Medicare premiums for that year.
One boundary worth knowing: qualified charitable distributions, which let you send retirement money directly to charity tax-free, are available starting at 70½ but only from IRAs, not from 403(b) plans.15Congress.gov. Qualified Charitable Distributions from Individual Retirement Accounts To use that strategy later, you’d first roll the 403(b) into a traditional IRA. Required minimum distributions from a traditional 403(b) also start later, at age 73 or 75 depending on your birth year, and Roth 403(b) accounts are now exempt from RMDs during the owner’s lifetime.16Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs) At 60, none of that is forcing your hand yet, which is exactly why the years ahead are worth planning carefully.