403b Retirement Plans: 10 Fast Facts You Should Know
403 Retirement Plans are tax-deferred retirement plans available to employees of educational institutions and certain non-profit organizations as determined by section 501 (c) (3) of the Internal Revenue Code (IRC).
Here I have 10 facts about 403b that you should know.
Fact 1: How 403b Plans Work
Set aside pre-tax retirement money through a pay cut agreement with your employer. You choose between 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 IRC section 501 (c) (3), you are eligible to participate and begin contributing.
Teachers, school administrators, school personnel, nurses, doctors, professors, researchers, librarians, and ministers contribute 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 supplement to your pension.
Fact 4: How Much You Can Contribute Annually
You can contribute with the lesser of:
- The elective deferral limit of $ 15,500
- Up to 100% of compensation included
- If your employer has 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 50 or older at any time during the year, you can contribute an additional $ 5,000
Fact 5: Lower taxes
You make pre-tax 403b contributions, which can greatly reduce your tax bill. Tax savings increase 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 that your earnings will grow tax-free until the moment 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 contributing $ 200 or less annually
- Employees who are participants in an eligible deferred compensation plan (457 or 401k) or participants in another TSA (tax protected annuity)
- Non-resident foreigners
- 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 only for federal (and in most cases, state) income tax purposes. 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-favored plans. The full credit is available to joint taxpayers whose adjusted gross income (AGI) is less than $ 53,000 and singles whose AGI is less than $ 26,500.
Fact 10: A 403b can be incorporated into an IRA
This happens when you change jobs; I take from; become disabled or die.
Well, you might think that 403b retirement plans are more or less similar to 401k plans. But there is one big difference: 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