A 403(b) plan is a retirement plan for University, civil government, and not-for-profit employees. This type of plan shares many of the same characteristics, withdrawals, contribution limits, tax rules, and investment choices as a 401(k) plan. This article will answer some frequently asked questions about this kind of plan, providing a fact base further your understanding of this type of retirement plan.
 Who is eligible for a 403(b) plan?
This plan is available to employees of educational institutions and certain not-for-profit organizations as determined by section 501(c)(3) of the Internal Revenue Code.
 How does a 403(b) plan work?
For this type of a plan, the participant can set aside money for retirement on a pre tax basis through a salary reduction agreement with your employer. You can choose from among the vendors offered by your employer where your money is to be invested. The money grows tax free until withdrawal at retirement, at which point it is taxed as regular income.
 Why is it called the 403(b) plan?
It is a reference to the relevant section in the Internal Revenue Code.
 When and why was this type of plan established?
The federal government introduced the plan in 1958 in an effort to encourage employees of certain tax-exempt organizations to establish retirement savings programs.
 Why contribute to a 403(b) plan?
Your employer provides you with a pension upon your 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.
 What investment options are available to 403(b) participants?
Unlike the 401(k), 403(b) participants cannot invest in individual stocks. Instead, their choices are:
a) Annuity and variable annuity contracts with insurance companies.
b) A custodial account made up of mutual funds. This is known as a 403(b)(7).
c) Retirement income accounts for churches.
 How much can be contributed annually to a 403(b)?
This is generally set as the lesser of:
$49,000 for 2010 and unchanged in 2011, or
100 percent of your inclusive compensation for your most recent year of service (IRS, 2010).
Under the general limit on elective deferrals, the most that can be contributed to your 403(b) account through a salary reduction agreement is $16,500 for 2010 and again is unchanged in 2011. This limit applies without regard to community property laws. (IRS, 2010)
 Why is the 403(b) often called a TSA or TDA?
When it was first created in 1958, participants could only invest in annuity products, so the name Tax-Sheltered Annuity (TSA) or Tax-Deferred Annuity (TDA) took root. Despite the fact that Congress granted participants mutual fund privileges in 1974, the TSA/TDA name remains very common today.
 How can a 403b pan be rolled into an IRA
This occurs when you change job; retire; become disabled or die.
 When can 403(b) money be accessed without penalty?
Generally, penalty-free distribution from a 403(b) cannot occur until the
a) Reaches age 59 1/2
b) Separates from service (and must be retired)
c) Becomes disabled
d) Through a loan (some investment companies allow this, some don’t)
IRS (2010) Publication 571 (3) [online] Available at: http://www.irs.gov/publications/p571/ch03.html
IRS (2010) Publication 571 (4) [online] Available at: http://www.irs.gov/publications/p571/ch04.html