403b Retirement Plan Facts

The 403b retirement plan is a great plan for people to take advantage of. The facts of the403b retirement plan can help you to understand the plan better. Even if retirement is far off for you, getting started making those relatively small contributions have a way of adding up, especially if you are consistent in contributing.

Fact one: Who Contributes to this plan

Employees of tax exempt organizations are eligible to participate if they are organizations that were established under the 501c (3) of the IRC. Examples of these are teachers, school administrators, school personnel, professors, researchers, and librarians. It also includes nurses, doctors, and ministers.

Fact two: How does this plan work?

Money is set aside from your employer, through a salary reduction agreement, on a pre tax basis for retirement. You decide which vendors you want to invest your money from ones that are offered from your employer.  Your money is growing tax-free till retirement when you withdraw it.

Fact three: It provides a healthy supplement to your pension.

Most pension plans do not provide as much as your salary you earn. Therefore, it is wise to contribute to a 403b plan on supplementing your pension.

Fact four: You can contribute a large sum

You can contribute to your 403b in one of these ways. The elective deferral amount is a limit of $15,500 annually, or if your employer match limits are 100% of compensation or $46,000, whichever is lower.  If you are 50 or older, you can contribute an additional $5,000, at any time during the year.

Fact five: More savings tax wise and lower taxes

All of the interests and capital gains and dividends that you earn are on a tax deferred basis, so your earnings grow tax free until you make withdrawals.  Your tax savings grows bigger as you increase your contributions, because your contributions are on a pre-tax basis, which reduces your tax bill.

Fact six: Even the part time employees are eligible to contribute

Employers have to extend this 403b plan to all their employees. There can be some employees excluded. Employees who are participating in another deferred compensation plan like a 401k or participating in another TSA would be excluded. Also those employees who contribute less than $200 annually would be excluded, too. This would also include students and employees who work less than 20 hours per week.

Fact seven: Reduction in Social Security benefits is not true

Because you reduce taxable compensation for federal and state income tax purposes, your contributions do not reduce wages that help in the determination of your benefits from Social Security.

Fact eight: This 403b plan can be rolled over into an IRA

When you change jobs, retire, or become disabled, this can occur. This is a lot like a 401k plan but the eligibility is the big difference. The 401k covers private sector employees, whereas the 403b covers employees in public schools and tax exempt organizations.

As you can see by the facts listed, there are many reasons to participate in the 403b retirement plan. Remember to contribute early and plan for the day when you will be retiring with a limited income and this plan will add a good supplement to your pension.