Distributions from a 403(b) account are taxable as ordinary income to the employee; however, if the distribution occurs when the employee is under age 59½ , the amount may be subject to an additional 10% early-distribution penalty, unless the employee qualifies for an exception.
The distributions are not subject to social security or Medicare tax. Readers of this blog will want to read other postings regarding potential housing allowance benefits to ministers who receive retirement distributions from church plans.
The members of my Federal Taxation I class at Maranatha Baptist Bible College in Watertown, Wisconsin have taken on the challenge of study and research to answer posted questions. James Jorgensen of Owatonna, Minnesota gets credit for this one.