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403(b)s and Your Retirement Planning

By    |   Thursday, 20 August 2015 03:02 PM

The 403(b) is a retirement savings plan available under IRS rules to employees of non-profit institutions such as churches, public schools and universities, and certain charitable organizations.

"Unlike 401(k) plans which are offered by for-profit companies, 403(b) plans are only available to employees of tax-exempt organizations," CNN Money explains.

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Like a 401(k), a 403(b) allows an employee to:

• Set aside several thousand dollars of deferred, "pre-tax" income a year annually toward retirement, knowing that money will grow tax-free over time in whatever investment fund (or funds) it is applied to, and will not be subjected to taxes until it is withdrawn.

• Make tax-deferred "catch-up" contributions in larger amounts after reaching age 50.

• Borrow money from the plan (as long as you're not yet retired) and then "pay yourself back the money you borrowed plus you repay yourself interest too," says AARP.

• Make penalty-free "hardship distributions" under certain unforeseen circumstances.

An employer can make matching contributions, also tax-deferred, to an employee's 403(b) plan, although Morningstar reports that "employers offering a 403(b) plan rarely match their employees' contributions."

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The IRS raises contribution limits over time, based on inflation: As of 2015, the annual limit on all employer and employee contributions, combined, to an individual's 403(b) plan is $53,000.

It is permissible to have a 403(b) and a 401(k) at the same time. "However, the contribution limits for the two types of plans do combine, so you don't get to double your annual deferrals," Zacks Investment Research reports.

The IRS cautions that a 403(b) "may have high administrative costs" and does not allow employees much, if any, latitude in deciding where to invest the money — the employer generally chooses the investments.

But the tax agency also lauds 403(b) plans for their flexibility in letting employees withdraw their money before retirement under certain circumstances.

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The 403(b) is a retirement savings plan available under IRS rules to employees of non-profit institutions such as churches, public schools and universities, and certain charitable organizations.
403b, retirement, planning
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2015-02-20
Thursday, 20 August 2015 03:02 PM
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