- Decrease your tax bill.
- Avoid the early withdrawal penalty.
- Roll over your 401(k) without tax withholding.
- Remember required minimum distributions.
- Avoid two distributions in the same year.
- Start withdrawals before you have to.
- Donate your IRA distribution to charity.
- Consider Roth accounts.
Both contributions and earnings in a 403(b) plan grow tax-deferred, meaning you do not have to pay any tax at all if your accounts rise in value, regardless of any transactions you make within the plan. You must report every withdrawal to the IRS and pay ordinary income tax on the amount of the distribution.
One of the main disadvantages of 403(b) plans is that the government penalizes you if you take your money out too soon. According to the IRS, 403(b) accounts are subject to a 10 percent early withdrawal tax penalty if you withdraw funds before the age of 59 1/2.
Once you're eligible, you can withdraw as much or as little as you want from your 403(b) account until you're 70 1/2 ears old. After that, you have to withdraw at least a minimum amount each year or face a tax penalty. The minimum required distribution amount depends on the total account balance and your age.
If you change jobs or retire, you can roll over your 403(b) account balance into a traditional individual retirement account (IRA). Often, a signed contribution form is the only item needed to deposit the funds into an IRA.
The law requires that a 403(b) contract or custodial account may not exceed the current calendar year's 402(g) limit. For a 403(b) plan, this means that all the contracts or custodial accounts held by a participant exceeding the deferral limit will lose their 403(b) status.
"Lump-sum contributions are usually allowed by employer plans and usually must come from another qualified account or qualified employer plan," Fort says. "For example, a rollover from an existing IRA, Roth, 401(k), 403(b), 457, Simple, SEP and more may be accepted into the current employer plan."
A 401(k) gives you much more flexibility when you're choosing your investments. A 403(b) can only offer mutual funds and annuities—this is not inherently bad because there are thousands of mutual funds to choose from. Annuities can also provide good retirement income if you choose the right one.
A 403(b) plan is a retirement account for certain employees of public schools and tax-exempt organizations. Participants include teachers, school administrators, professors, government employees, nurses, doctors, and librarians.
In some cases you can make early withdrawals from a 403(b) without paying a penalty. Similarly to a 401(k), 403(b) account holders can start taking distributions in the year they leave work as long as they turn 55 or older in that same year. You won't pay the penalty for withdrawals after you've become disabled.
Though you won't pay income tax on contributions to a 403(b) retirement plan, you must still pay Social Security and Medicare taxes. Your employer will also pay unemployment tax and the employer's share of Social Security and Medicare taxes on these wages.
The advantage of a 403(b) when compared to your IRA options is that it has a higher contribution limit. The most that can be contributed to a 403(b) account through employee elective deferrals by means of a salary reduction agreement for 2011 is $16,500. Another advantage of the 403(b) can be your investment choices.
Simply put, a 403(b) is an employer-sponsored plan you can use to save for retirement, like a big bucket you put money into for your future. Since you're contributing after-tax dollars, the money you put into a Roth 403(b) grows tax-free and you won't pay any taxes when you take the money out in retirement.
If you're over age 55 and you've lost your job, whether you were laid off, fired, or quit, you can also pull money out of your 401(k) or 403(b) plan from your current employer without penalty.
Both pension plans and 403(b) plans are tax-advantaged retirement plans designed to benefit workers. The structure of these two financial products are very different. Pension plans are more traditional than 403(b) plans, and essentially rely on the generosity of employers to provide employee benefits.
My 403(b) Plan Offers an Annuity. When the 403(b) was invented in 1958, it was known as a tax-sheltered annuity. While times have changed, and 403(b) plans can now offer a full suite of mutual funds similar to those available in 401(k) plans, many still offer annuities.
Distributions from 403(b) plans are not taxed at capital gains rates, but are instead taxed at ordinary income rates. Once an individual is eligible to begin withdrawing funds from their 403(b), they will be required to pay tax on any money they receive.
