Considerations

• Individuals invested in a 403b should contact their plan administrator to determine whether early withdrawal is an option. While the IRS permits early withdrawals, some organizations that set up 403b plans prohibit individuals from making withdrawals, except in cases of financial hardship, unless plan holders reach 59 and a half years of age, according to 403bwise. Even in cases of hardship, plan holders must have their documented hardship approved by their plan administrator by providing proof that they have no other recourse than to dip into their retirement funds.
  
  

Penalty

• Holders of 403b accounts who withdraw sums of money from their plan or cash out their plan completely will pay a 10 percent penalty on all withdrawals, according to the Foothill De Anza Community College. Individuals can withdraw monies from their plan without penalty if they reach the age of 59 and a half years of age, become disabled or encounter financial hardship, according to the IRS. People who cash out their 403b and transfer the money to another IRS approved retirement plan within one year of withdrawal can avoid this penalty.
  
  

Warning

• Since 403b contributions are tax deferred, a plan holder who cashes out her plan will incur a large tax liability, because she will owe income tax on the entire sum that she removes from her retirement account. This can place a plan holder in a higher income tax bracket at both the state and federal level, so she may not want to cash out her entire retirement at a single time. Federal income tax rates run as high as 35 percent, and state income tax rates go as high as 11 percent as of 2011, according to Oblivious Investor.
  
  

Filing

• Holders of 403b accounts must have their plan administrator cash out the funds for them. The administrator will then send a copy of the 1099-R form, which lists the amount of the withdrawal, to both the IRS and the plan holder shortly after the end of the tax year. Plan holders will then count the withdrawal as income on their Form 1040 tax return and calculate their early withdrawal penalty on Form 1040, line 58.