403b Retirement Plans - NY
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What Is a 403b Plan?
A 403(b) plan is a special tax-deferred retirement savings plan that is often
referred to as a tax-sheltered annuity, a tax-deferred annuity, or a 403(b)
annuity. It 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 can fund their accounts with pre-tax contributions, and employers can
also make contributions to employee accounts. Employer contributions can be
fixed or discretionary. Eligible employees may elect to defer up to 100% of
their salaries, as long as the amount does not exceed $15,500 (in 2008). A
special “catch-up” contribution provision enables those who are 50 and older to
save an additional $5,000. Total combined employer and employee contributions
cannot exceed $46,000 (in 2008). Contribution limits are indexed annually for
inflation.
Employees have the option of choosing the types of investments utilized in their
funds. A 403(b) can be an annuity contract, a custodial account, or a retirement
income account. It is a good idea to do a little research before selecting how
you would like to invest your funds. Your employer can provide you with a list
of the investments that are available.
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 income tax penalty unless a
qualifying event occurs, such as death or disability.
As with other retirement plans, once you reach age 70½, you must begin taking
annual required minimum distributions. You can receive regular periodic
distributions on a schedule that is calculated based on your life expectancy, or
you can collect your entire investment as a lump sum.
Participating in a 403(b) plan may be a good way to save for retirement. Contact
your employer to find out what type of plan is offered and how you can take
advantage of this retirement funding vehicle.
This material was written and prepared by Emerald Publications. © 2007 Emerald Publications
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