403(b)

A 403(b) is similar to a 401(k) plan, except a 403(b) plan is designated for public school districts, higher education institutions and non-profit organizations to provide a way for employees to save for their retirement. 

Advantages of a 403(b) Plan for employees

  • Employees may choose to make contributions pretax or Roth which are made after-tax.
  • They pay no income taxes on contributions or earnings until they are distributed.
  • Tax-deferral maximizes the compounding value and increases the participant’s ultimate retirement income.
  • Pretax withdrawals are subject to ordinary income tax and, if made prior to age 59½, may be subject to a 10% IRS penalty tax.
  • Roth 403(b) contributions and earnings are entirely tax-free at the time of distribution if certain requirements are met.

Contributions 

  • Participants can elect to contribute up to 100% of their income, up to maximum limits as determined by the IRS for each tax year.
  • An additional Catch-up provision is also available for those age 50 and older
  • An additional “catch-up” option may be available for certain individuals, with at least 15 years of service.
  • Salary reductions make employee deferrals/contributions convenient and easy
  • Employee Traditional 403(b) pretax deferrals reduce Federal, State, and Local income taxes but are subject to Social Security (FICA) tax1.
  • Employee Roth 403(b) after tax contributions are subject to State, Federal, and Social Security (FICA) taxes.
  • Employee deferrals are always 100% vested.
  • All of the participant’s account balance is payable upon retirement, disability, or death, and is payable with any other severance from employment.
  • Taxable distributions for reason of disability, death, or after age 55 and severance from employment avoid the IRS 10% early withdrawal penalty.
  • Employees can defer any or all distributions until they are subject to IRS minimum distribution rules at the later of age 70½ or retirement.

The links below can provide you with additional information and resources about the other various options and comparisons of the different types of 403(b) plans.

403(b) Matching Plans for school districts
An Employer Matching Contribution Plan can help school districts more tightly administer their finances while giving employees more retirement-saving options. Much like a 401(k) plan, both the employer and employee contribute to the plan pretax, saving the district taxes, provides cost-savings from the salary schedule and contributes to employee retention. The school district completely controls the parameters of executing and funding a 403(b) Employer Matching Contribution Plan. Learn more and download our resource for school districts:

403(b) Special Pay Plans for school districts
A 403(b) Special Pay Plan allows school districts to manage the costs associated with employees who leave the district with unused sick and vacation time to cash in, or employees who are eligible for an early-retirement option. A school district can designate money as an employer contribution for deposit to an employee's 403(b) account instead of contracting for payouts, helping the district avoid unforeseen expenses and taxes due on a payout. The plan also allows the employee to save tax-deferred. The school district has control on the design of the 403(b) Special Pay Plan. 

To learn more on how we can help you with your 403(b) plan, contact Security Benefit at 800.747.5164, option 3.

1Check with your tax advisor for your state and local income tax treatment.

Prepared by Broadridge Advisor Solutions, Copyright 2020.

The educational information provided here is provided by Broadridge Investor Communication Solutions, Inc. (Broadridge).

Neither Broadridge Investor Communication Solutions, Inc. nor Security Benefit provides investment, tax, legal or retirement advice or recommendations. The information presented here is not specific to any individual's personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Broadridge and Security Benefit are not affiliated.

Security Benefit, its affiliates and subsidiaries, and their respective employees and representatives, do not provide tax, accounting, or legal advice. Any statements contained herein concerning taxes were not intended as and should not be construed as tax advice, nor should they be used for the purpose of avoiding federal, state, or local taxes and/or tax penalties. Please seek independent tax, accounting, or legal advice.