403b Review Program

A 403(b) plan is a type of tax-sheltered retirement plan that has a lot in common with the more widely recognized 401(k) plans. A 403(b) plan is for employees who work in organizations that serve certain religious, charitable, scientific, public safety testing, literary or educational purposes. If you are eligible to participate in a 403(b) plan, you should know that there are a lot of benefits. Some of the benefits are as follows; 1) Contributions Are Tax Deductible. 2) Taxes Are Paid on Distributions in Retirement. 3} Some 403(b) Plans Have a Roth Option. 4) Savings Grow Tax-Free. 5) You Can Take Out a Loan on a 403(b). 6} Employers Can Offer Matching Contributions. 7) Contribution Limits Are Higher than for IRAs. 8) Additional Contributions May Be Possible Based on the ’15-Year Rule’.

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Frequently Aked Questions

  • As an employee of a public school, you have a unique opportunity to invest for your retirement through a 403(b) retirement plan, sometimes referred to as a tax-sheltered annuity (TSA).

    Offered through the employer, 403(b) plans:

    • Are salary deferral plans that allow you to contribute to your retirement through the convenience of payroll deduction, like 401(k) plans offered in the private sector.

    • Offer you the opportunity to build up retirement savings and direct your savings investment to best meet your goals and personal situation.

    • Accept contributions on a before-tax and/or after-tax (Roth) basis. Please check with your school to see what type of 403(b) contributions are permitted.

  • Generally, employees of schools and other non-profit organizations are eligible for TSAs, also known as 403(b) plans. You must be employed, because 403(b) contributions are only made through payroll deductions. Most employees, regardless of job classification, title, or location, are eligible to participate in before-tax and/or after-tax (Roth) savings. Each employer maintains a list of 403(b) providers for its employees to use.

  • Whether you contribute to a before-tax 403(b) (before-tax contributions from an employee’s pay check), an after-tax 403(b) (after-tax contributions from an employee’s paycheck), or a combination of both, your total elective contribution limit cannot exceed the lesser of $18,500 or 100% of salary in 2018.
    After that, further increases will be indexed for inflation in $500 increments. However, you may be able to contribute more if you are eligible for catch-up provisions.

    Catch-up provisions:

    15 years of service
    If you have 15 years or more of service with the same employer, you may be able to contribute up to $3,000 per year over the standard limit. The service provision has a lifetime accumulation limit of $15,000.

    Age 50 and older
    If you are age 50 or older, you may contribute $6,000 over the standard elective limit in 2018.
    You may be eligible to take advantage of both catch-up provisions simultaneously. The age-50-and-older catch-up provision does not reduce the 15-years-of-service lifetime limit of $15,000.

    The non-elective contribution limit for 2018 is 100% of the employee’s salary or $55,000, whichever is less, minus any elective contributions. However, employees age 50 and older may be eligible to contribute more.

    These calculations can be complicated. It is best not to guess at your personal limit, especially if you want to maximize your benefit. Many school employers require 403(b) participants to file a personal contribution limit calculation every year.

  • Pre-tax 403(b) contributions are made on a before-tax basis, reducing your taxable income. You don’t pay taxes on the contributions or earnings until you withdraw the money.

    Roth 403(b) contributions are after-tax, which means you pay taxes on your contributions now, but all qualified* withdrawals, including earnings, are tax-free.

    Participants may make contributions on a before-tax basis, a Roth basis, or some combination of the two up to the 403(b) contribution limit.

    Participants should consider holding both before-tax and Roth savings—the former to benefit in the event of lower taxes in your retirement years, and the latter to benefit in the event of higher taxes in your retirement years. This is tax diversification. The Roth 403(b) is an opportunity to have more control over your tax liability in retirement.

  • Roth 403(b) contributions are after-tax, which means you pay taxes on your contributions now, but all qualified* withdrawals, including earnings, are tax-free. These contributions can only be made through payroll deduction.

    The Roth IRA is an additional after-tax savings option. Participants may want to contribute to a Roth IRA if they are maximizing their 403(b) contributions or if they are concerned about the ability to access their contributions before retirement.

    However, not everyone is eligible for the Roth IRA. To contribute in 2018, your income must not exceed $135,000 (single) or $199,000 (married, filing jointly).

    Also worth noting is the difference between contribution limits for the Roth 403(b) and Roth IRA. Contribution limits are substantially lower in the Roth IRA. In 2018, for participants under age 50, a Roth IRA allows contributions only up to $5,500 annually, compared to $18,500 for the Roth 403(b).

  • If the 403(b) plan allows, loans are permitted to individuals. The plan sponsor must approve loans in advance. Loan limits apply and are aggregated with any other loans in 403(b) accounts within the plan and any loans from any other qualified retirement plan of the employer.

  • You can take distributions from the 403(b) plan at age 59½, if you are fully disabled, or at separation of service (10% IRS penalty may apply if withdrawn before age 59½. Regular income tax will be due on distributions.). Distributions due to financial hardship may be available. Please check with the Plan Administrator for eligible hardship distributions and be able to provide any supporting documentation of the hardship. All distributions must be approved by the plan administrator. 

  • Most school districts engage a third-party administrator (TPA) to establish and manage their 403(b) plan document to ensure compliance with IRS rules and guidelines.

    A school district’s benefit office can provide you with information regarding their TPA.

Starting a 403b Retirement Plan; Watch this video

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