What is a 403(b) plan?
A 403(b) plan is a tax-deferred (pre-tax) retirement savings plan made available to employees of governmental and certain non-profit organizations. Contributions to the plan are invested in mutual funds, bond funds, annuities, or other investment vehicles and grow tax free until withdrawn.
You are limited to the amount you may contribute to the 403(b) plan each year. Generally, you may contribute up to $20,500 per year. However, various catch-up options may allow you to contribute more than $20,500. If you are over age 50 you may contribute an additional $6,500*. There is also a catch-up option available to employees with at least 15 years of service with their current employer. The 15-years of service catch-up could enable you to contribute up to $3,000* additional per year up to a maximum of 5 years. Your employer may also elect to make 403(b) contributions on your behalf. Your combined employee and employer contributions may not exceed the lesser of $61,000* or 100% of your compensation.
The following are events that will allow you to withdraw funds from your account and either receive the money directly or rollover the money to a different retirement plan:
- Termination of employment from your current employer
- Attainment of age 59 ½
- Financial hardship
However, certain tax penalties may apply when money is withdrawn prior to age 59 ½. Consult with your advisor for additional details.
Direct withdrawals may generally be made in the form of a lump sum distribution or in an regularly scheduled payment.
Loans may also be taken from your 403(b) plan. Consult with your advisor for additional details.
You may contribute to both the 457(b) and 403(b) plans concurrently. Therefore, if you desire to maximize your tax deferred savings opportunities you may wish to contribute to both plans. Each plan has separate $20,500 base contribution limitations (which may be higher if you qualify for certain catch-up provisions).