403(b) Basics
What is a 403(b)?
A 403(b) is a tax-deferred retirement savings plan available for public education organizations, some tax-exempt organizations, and self-employed ministers in the United States. Consult your employer for your eligibility status. It is similar to the more commonly known 401(k) plan. By ERISA standards a 403(b) plan does not have to be a “qualified plan” but generally most 403(b) resemble qualified plans.
403(b) plans are often referred to as "tax sheltered annuities". This is misleading and projects the impression that a participant must only invest in insurance-backed annuity products, which is untrue. A 403(b) may also be invested in mutual funds.
How does a 403(b) work?
Once enrolled with MCA, you can begin saving tax deferred money for retirement through a salary reduction agreement that will need to be completed and turned into your payroll department. Contributions and earnings on investments will grow tax deferred until the time you begin withdrawing funds at retirement. At that point withdrawals are taxed as ordinary income.
What are the 403(b) contribution limits?
For the year 2010, participants can contribute $16,500 in elective deferrals. A participant age 50 or older at any time during 2010 can contribute an additional $5,500 for 2010. For participants with employer matches or other employer contributions, the total limit for 2010 is $49,000 or 100% of compensation (whichever is less). The participant is still limited to the personal elective deferral limit ($16,500). An employer can add up to another $32,500 for 2010.
15 Years of Service Provision
Participants with 15 years or more of service with an employer and an annual average contribution of less than $5,000 per year, are eligible to contribute an additional $3,000 per year up to a lifetime maximum catch-up of $15,000. If an employee qualifies for the 15-year rule, their elective deferral limit can be as high as $19,500. Requirements of this "catch up" provision are very specific so if you are contemplating using it please contact us.
Age 50 Plus Catch Up
Participants who are age 50 or over at the end of the calendar year can also make catch-up employee elective contributions beyond the basic limit on elective deferrals. for 2010 this amount is $5,500.
