403b Retirement Plans: 10 Facts You Need to Know

403 retirement plans are tax-deferred retirement plans available to employees of educational institutions and certain nonprofit organizations as defined by section 501(c)(3) of the Internal Revenue Code (IRC).

I have 10 facts here on 403b that you should know.

Fact 1: How 403b Plans Work

You set aside money for retirement on a pre-tax basis through a salary reduction agreement with your employer. You choose among the providers offered by your employer in which you want to invest the money. The money grows tax-free until you withdraw it at retirement.

Fact 2: Who can contribute to a 403b

If you are an employee of tax-exempt organizations established under section 501(c)(3) of the IRC, you are eligible to participate and start contributing.

Teachers, school administrators, school staff, nurses, doctors, professors, researchers, librarians, and ministers are contributors to the plan.

Fact 3: Why contribute to a 403b

Your employer provides you with a pension upon retirement. However, the pension plan may not provide an amount equal to your salary. A 403(b) plan can provide a healthy addition to your pension.

Fact 4: How much you can contribute annually

You can contribute the lesser of:

• The elective deferral limit of $15,500

Prayed

• Up to 100% of compensation included

Prayed

• If you have employer matching contributions or other employer contributions, the limits are $46,000 or 100% of compensation (whichever is less). You are still limited to the employee’s elective deferral limit ($15,500). Therefore, your employer can add another $30,500 to your account
• If you are age 50 or older at any time during the year, you can contribute an additional $5,000

Fact 5: Lower taxes

You make 403b contributions on a pre-tax basis, which can greatly reduce your tax bill. Tax savings grow as your contributions increase.

Fact 6: More tax savings

All dividends, interest, and capital gains earned on a 403b account are tax-deferred. This means your earnings will grow tax-free until you withdraw them.

Fact 7: Part-time employees eligible to contribute to 403b retirement plans

Your employer must extend the 403b plan to all employees.

However, certain employees may be excluded, such as:

• Employees who contribute $200 or less annually
• Employees who are participants in an eligible deferred compensation plan (457 or 401k) or participants in another TSA (tax-sheltered annuity)
• non-resident aliens
• Students and employees who work less than 20 hours per week

Fact 8: The 403b plan does not reduce Social Security benefits

Your contributions to a 403b reduce taxable compensation for federal (and in most cases, state) income tax purposes only. These contributions do not reduce wages for the purpose of determining Social Security benefits.

Fact 9: Special tax credit for low-income savers

Eligible savers will receive a tax credit of up to 50% or up to $2,000 in contributions to an IRA, 403b, 457, SIMPLE, 401k and other tax-advantaged plans. The full credit is available to joint filers whose adjusted gross income (AGI) is less than $53,000, and single filers whose AGI is less than $26,500.

Fact 10: A 403b can be rolled over to an IRA

This happens when you change jobs; tome of; become disabled or die.

Well, you might think that 403b retirement plans are more or less similar to 401k plans. But there is a big difference there: your eligibility.

If you are an employee of public schools and certain tax-exempt organizations (as determined by IRC Section 501(c)(3)), you are eligible for 403b. The 401k, on the other hand, covers private sector employees.