How to Pay a Mortgage With 403(b) Funds

It's a potential financial hardship only if your primary residence is being foreclosed on.

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A 403(b) plan doesn't let you get money out whenever you want. Instead, you can take distributions only after turning 59 1/2, leaving your job or, if your 403(b) plan allows, experiencing a financial hardship. Paying your mortgage counts as a financial hardship only if you're facing foreclosure on your primary residence -- not a vacation home -- and you have no other funds to pay off the debt. Distributions from your 403(b) plan count as taxable income and, if you're younger than 59 1/2 years old when you take the distribution, you may also have to pay a 10 percent early-withdrawal penalty.

Step 1

Obtain a 403(b) plan request form from either your 403(b) plan administrator or the financial institution that keeps the funds. Sometimes, you can simply download the form from the financial institution's website.

Step 2

Request a distribution. If you're over 59 1/2 or have left the job, you don't need to worry about qualifying for a hardship distribution. However, if you're still working for the same employer and aren't 59 1/2 yet, you must show evidence that your primary residence is going to be foreclosed on, such as a notice from the lender stating that it intends to foreclose, You must also submit documentation on the amount you must pay to avoid foreclosure and the date of the foreclosure.

Step 3

Use the distribution to pay for your mortgage. Usually, you have to wait while the distribution check is mailed to you and then use the proceeds to pay the mortgage. But if you need the money faster, you may be able to request express delivery for the check or have the money deposited in your account with a wire transfer, but it could cost extra.

Step 4

Report the distribution on your income taxes. If you're over 59 1/2 years old, just report it as a taxable annuity and pension distribution on Form 1040 or Form 1040A. However, if you're under 59 1/2, you must also fill out Form 5329 to either calculate the 10 percent early withdrawal penalty or report your exception. There is no exception for paying your mortgage, even to avoid foreclosure. But, if you retired after turning 55, you're excused from the penalty.