What Is a 403(b) Plan?
A 403(b) plan is a special tax-deferred retirement savings plan that is similar to a
401(k), but only the employees of public school systems and 501(c)(3) organizations are eligible to participate in 403(b) plans.
Employees fund their accounts with pre-tax contributions through payroll deduction
to one of the 58+ approved companies on the school districts list. Eligible employees may elect to defer up to 100% of their salaries, as long as the amount does not exceed $19,500 (in 2021). A
special “catch-up” contribution provision enables those who are age 50+ to save an additional $6,500. Another catch-up provision may allow those with 15 years of service with the same employer
to contribute an additional $3000 annually for 5 years not to exceed $15,000.
Employees have the option of choosing the types of investments utilized in their
plan, you can choose from the following:
1. Fixed Interest Annuity
2. Equity Index Annuity
3. Variable Annuity
4. Mutual Funds
Distributions from 403(b) plans are taxed as ordinary income and, if made before the age of 59½, may be subject
to a 10% federal tax penalty and a 2.5% state tax penalty, unless you meet a qualifying event:
1. Attainment of age 59 1/2 (70 1/2 for 457(b) gov't
plans
2. Separated from employment
3. Employer Terminated Retirement Plan
4. Active-Duty Reservist
5. Unforeseeable Emergency/Financial Hardship such
as:
a. to pay medical expenses for the owner, spouse
or
dependents not covered by
other insurance.
b. to purchase a principal residence (403(b) and
401(k) only)
c. to pay tuition for the next 12 months for
post-secondary education for
the owner, spouse or
dependents. (403(b) and 401(k) only)
d. to prevent eviction or foreclosure on a
principal residence.
e. to pay funeral expenses on an immediate family
member.
f. Uninsured casualty
loss.
Loans are available that must be paid back over 5 years or for a home purchase you can pay it back anywhere from
10-25 years.
As with other retirement plans, once you reach age 70½ (for those who turned 70 1/2
prior to Dec 31, 2019) you must begin taking annual required minimum distributions (RMD's). Anyone who turned 70 1/2 after that date is not required to take RMD's until age 72. You will receive
regular periodic distributions on a schedule that is calculated based on your life expectancy, or you can collect your entire investment as a partial or lump sum.
Why Should I save in a Pre-Tax 403(b) Account NOW?
Lower Taxes - 403(b) contributions are made on a pre-tax basis which can greatly reduce your tax bill. Generally, if you contribute $300 a month to a 403(b) plan, you will save roughly $100 in taxes.
More Tax Savings - all dividends, interest and capital gains accumulate in a 403(b) account on a tax-deferred basis. This means your earnings will grow tax-free until time of withdrawal.
A Healthy Retirement - Most employees of educational institutions and other non-profit organizations are provided with a pension upon retirement. Few pension plans, however provide an amount equal to salary. A 403(b) plan can provide a healthy supplement to a pension.
Securities and investment advisory services offered through GWN
Securities, Inc., a Registered Broker/Dealer and Investment Advisor. Member FINRA & SIPC, www.finra.org
www.sipc.org 11440 N. Jog Road, Palm Beach Gardens, FL., 33418, (561) 472-2700
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