Guide to Teacher Retirement Plans

 403(b) Retirement Plan

What is a 403(b)?

A 403(b) is an employer sponsored retirement plan for teachers and employees of non-profit organizations.

What are the tax advantages of a 403(b)?

Contributions are pre-tax, lowering your taxable income today, and grow tax deferred.

How is the 403(b) plan funded?

Tax deductible contributions to the retirement plan can only come from salary deductions and these deducted monies can only be placed into plans offered through and made available through the employer. An employee cannot directly fund his/her own plan.

What are the investment optons of a 403(b)?

Several investments can be under a 403(b):

·         Mutual Funds

·         Variable Annuities

·         Fixed Annuities

·         Equity Indexed Annuities

Is there a vesting schedule?

Employees are always 100% vested and own their participation in the plan.

How much can I contribute to a 403(b)?

You can contribute up to $16,500 per year into the plan

If you are over age 50, you can contribute and extra $5,500 per year for a total of $22,000!

Employees 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. 

What is a Roth 403(b)?  

A Roth 403(b) is where the contibution into the 403(b) is after tax, grows tax deferred, and comes out tax free.

Should I choose a Traditional or Roth 403(b)?

The reasons to choose one or the other are your current income tax bracket and your expected income tax bracket in retirement.

Can I take a loan from my 403(b)?

Loans can usually be taken, up to 50%, and paid back over five years.

Is there an employer match on a 403(B)?

Most  403(b)’s do not have an employer match.

When can I have access to my money?

If you withdraw assets prior to age 59 1/2, the IRS will impose a 10% penalty tax, in addition to the normal tax consequences.

What do I do if I leave the organization where my 403(b) is located?

You can roll it over into your own IRA or into your next employers plan.

What investment companies are available to invest with?

Since it is an employer sponsored retirement plan, you are only permitted to invest with a company offered through your employer.

Everyones situation is different, so please seek the advice of a qualified financial advisor and tax advisor before making decisions on your retirement plan.