A reader sent in this question:
Hello George – I have been trying to get to bottom of a question in layman's terms involving 403(b) and real-estate investment.
My wife and I have a 403(b) and would like to buy a condo in So FL. Can we do so using the 403(b) without penalties and/or taxes etc. We not at retirement age yet; 59 for me and 55 for her.
Please advise... Thank you very much for your time... S.D.
And my reply:
Generally if you withdraw money from a 403(b) plan you will pay ordinary income tax on the distribution. On top of that, if you are under 59½ you will face a 10% penalty.
If it does allow early withdrawals, it must provide the specific rules used to determine the hardship.
For example, a plan may provide that a distribution can be made only for medical or funeral expenses, but not for the purchase of a principal residence or for payment of tuition and education expenses.
I suggest you check with your plan’s administrator to see if there is a provision for buying a home. Usually, though, when such a provision exists, it is only for the first-time purchase of a primary residence — not a vacation or rental property.
You can read more about withdrawals from retirement plans here: http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Hardship-Distributions
So if I were you, I would not take this money out of your 403(b).
Have you looked into getting a mortgage? With interest rates extremely low, you might consider it.