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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76080  
Subject: Re: Questions about 403(b)7 Date: 4/17/1998 8:03 PM
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PSUEngineerfool,

<<Pixy, isn't it technically correct to say it grows tax free instead of tax deferred. Tax deferred would imply a tax on it at some time in the future. (The government probably called it tax deferred to indicate future plans. I am so cynical.)>>

IMHO, no. Potentially the earnings ARE taxable unless on withdrawal they meet the definition of qualified, which means after five years AND:
a. At age 59 1/2 or later.
b. At death.
c. After disability determination.
d. For a first-time home purchase subject to the $10K lifetime limit.

As a quick example, I could withdraw earnings prior to age 59 1/2 for education expenses. I would escape the 10% penalty, but my withdrawal would be taxed. Or I could take earnings just because I felt like it. In that case, they would be taxed and penalized.

Regards....Pixy
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