If you are employed by a public school or a 501(c)(3) tax-exempt organization, you may have an opportunity to participate in your employer-sponsored 403(b) tax deferred annuity retirement plan as an additional way to save toward retirement.
A 403(b) plan is an employer-sponsored plan. So, your employer determines who is eligible to participate in the 403(b) plan and identifies the investment providers available under the 403(b) plan.
Participating in a 403(b) plan offers many advantages:
How much can I contribute?
You can contribute pre-tax salary (and/or after-tax salary if your plan permits Roth 403(b) contributions) to the plan. In addition, your plan may also provide for your employer to make contributions. The total amount of pre-tax and Roth 403(b) contributions you elect to contribute generally cannot be more than the IRS limit ($18,000 in 2017, adjusted annually for cost of living). If you have at least 15 years of service with certain employers, you may be able to contribute up to an additional $3,000 a year, with a life-time limit of $15,000 under this catch-up contribution. Finally, if you are at least age 50, you may contribute an additional $6,000 in 2017 (adjusted annually for cost of living). In general, the total amount of employee and employer contributions made to your plan account in a calendar year may not be more than $54,000 in 2017 (adjusted annually for cost of living).
When can I take distributions?
While your plan will determine when you can take distributions, IRS rules allow you to access amounts you have contributed to your 403(b) plan when you have a severance from employment, become disabled, have a hardship or reach age 59 ½. If your plan permits employer contributions, your plan will indicate whether these amounts can be withdrawn under the same rules or whether different reasons will apply. Your beneficiary may take a distribution of your account upon your death. Since your employer's 403(b) plan may not permit certain types of distributions, be sure to check with your employer about specific reasons for distribution permitted under your plan.
Distributions from your 403(b) plan before you reach age 59 ½ are generally subject to an IRS 10% premature distribution penalty tax, unless an IRS exception applies.
Once you are retired, IRS rules require you to begin taking distributions from your 403(b) plan by April 1 of the calendar year following the calendar year in which you are at least age 70 ½.
Your distribution from the 403(b) plan can be paid in an option available under the investment provider's product. In the alternative, to the extent permitted under IRS rules, you can roll over the eligible portion of your distribution to an IRA or a 401(a), 401(k), another 403(b) or a governmental 457(b) plan that accepts rollovers.
If your 403(b) plan permits, you may be eligible to take a loan from your account balance.
For educational use only.