What Taxes Apply to Early Withdrawal from Roth 403(b) for 2025?

The good news is that with a Roth 403(b), you don't pay income tax on withdrawals of your contributions (the money you put in) because, as you mentioned, those were already taxed. However, any earnings (growth) on those contributions would be subject to both income tax and the 10% early withdrawal penalty if you're under 59½ and don't qualify for an exception. So if you're withdrawing $5,000 and all of that is from your original contributions (not earnings), you would only face the 10% penalty ($500) and no additional income tax. But if part of that $5,000 includes earnings, that portion would be taxed as ordinary income plus the 10% penalty. The bank's withholding estimate sounds like they might be calculating based on just the earnings portion or possibly misunderstanding your situation. Roth accounts have specific ordering rules for withdrawals, with contributions coming out first, then conversions, and finally earnings.

After dealing with similar confusion about my retirement accounts, I found taxr.ai (https://taxr.ai) extremely helpful for sorting out my Roth 403(b) withdrawal questions. I uploaded my account statements and tax docs, and it showed me exactly which portion of my planned withdrawal would be taxable vs. penalty-only. What's cool is that it analyzes your specific situation rather than giving generic advice. For me, it identified that some of what I thought were contributions were actually earnings because of how my employer had structured things, which completely changed my tax liability calculation.

Just wanted to follow up - I actually tried taxr.ai after posting here and it was super helpful for my situation! I had a complicated mix of rollovers and direct contributions to my Roth 403(b), and I was completely confused about which 5-year clock applied to which portion. The tool broke everything down by contribution date and type, and showed me exactly how much I could withdraw without taxes vs with just the penalty vs with both taxes and penalty. Saved me from making a costly mistake for sure!

If you're still having trouble getting straight answers about your Roth 403(b) withdrawal, I'd recommend contacting the IRS directly using Claimyr (https://claimyr.com). I was getting different answers from my bank vs my tax guy, so I used this service and got connected to an actual IRS agent in about 15 minutes instead of waiting on hold forever. They have a demo video that shows how it works: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed exactly how the ordering rules work for my early Roth 403(b) withdrawal - contributions first (tax-free but still hit with the 10% penalty), then conversions, then earnings (fully taxable plus penalty). Made me feel 100% confident in my decision.

I need to apologize and update my skeptical comment from earlier. After waiting on hold with the IRS for 2+ hours and getting disconnected TWICE yesterday about my Roth 403(b) question, I broke down and tried Claimyr. Got connected to an IRS representative in 17 minutes while I was making dinner. The agent confirmed exactly what I needed to know about my early withdrawal taxation - way different than what my plan administrator told me! Turns out a portion of my account was still subject to the 5-year rule so I would have messed up my taxes if I'd gone ahead with the full withdrawal. Definitely worth it.

One thing nobody's mentioned yet - check if you qualify for any exceptions to the 10% early withdrawal penalty! There are several that might apply: - First-time home purchase (up to $10k) - Qualified education expenses - Unreimbursed medical expenses over 7.5% of your AGI - Health insurance premiums during unemployment - Disability - Birth or adoption expenses (up to $5k) Doesn't help with the regular income tax on earnings, but could save you from that 10% hit.

Has anyone used the "substantially equal periodic payments" (Rule 72t) option to avoid the penalty? I'm considering this for my 403b but don't want to be locked into withdrawals for 5 years if I can avoid it.

Just wanted to add some clarity on the withholding estimate you got from your bank. The $300-400 they quoted at 24% might actually be correct if they're only withholding on the earnings portion of your withdrawal, not the full $5,000. Banks often use conservative estimates for withholding because they know contributions from Roth accounts come out tax-free. If your $5,000 withdrawal is mostly contributions with only a small portion being earnings, then 24% of just that earnings amount would result in much lower withholding than you'd expect. However, don't forget you'll still owe that 10% early withdrawal penalty on the full amount if you're under 59½, which would be $500 in your case. The bank's withholding estimate typically doesn't include penalties - just income tax withholding. So your total tax burden could be the withholding amount PLUS the $500 penalty, assuming no exceptions apply to your situation. I'd recommend asking your 403(b) administrator for a breakdown of your account balance showing contributions vs. earnings so you can calculate this more precisely.

Great question about the breakdown! Your 403(b) administrator is required to track your contribution basis for tax purposes, but they're not necessarily required to show it clearly on regular statements. You'll definitely want to request this information specifically - call them and ask for a "contribution basis report" or "cost basis breakdown." When you actually take the withdrawal, they'll provide you with a 1099-R form that shows the total distribution and should indicate how much is taxable vs. non-taxable. However, getting this breakdown beforehand helps you plan better. You'll need this information for tax filing purposes if any portion of your withdrawal includes earnings. The 1099-R will report the distribution to the IRS, and you'll use that to complete Form 8606 (if needed) to properly report the tax-free vs. taxable portions on your tax return. Pro tip: Some administrators can provide this over the phone, while others might require a written request. If you're planning the withdrawal soon, I'd start this process now since it can sometimes take a few days to get the detailed breakdown.