403b retirement plans are essentially savings plans that are available for public education organizations, and some other types of organizations in the United States. The contributions to the 403b retirement plans are not taxable; however, the withdrawals from the plan will be taxed as income tax. Contributing towards retirement plans such as the 403b plans can help individuals to retire wealthy. As retirement plans that are governed by the IRA, these plans are subject to various rules regarding the 403b contribution limits, 403b withdrawals and other rules as well.
403b Rules Governing Contribution Limits
The 403b contribution limits are subject to change every year. However, the amount that can be contributed to this IRA savings account has remained the same over the past 3 years. The contribution limits for the 403b retirement account for the year 2011 is a deferral limit of $16,500. The rules state that this limit is applicable to all the 403b accounts that an individual may hold. For an individual who is above 50 years of age however, the contribution limit is $22,000.
The 403b contribution limits are the same as the 401k limits of contribution. The 401k is another savings plan for retirement where the limit has been identical to the limits of the 403b plans. The 401k plans were the first widely available retirement plans in the United States. The 401k retirement plans originated as an alternative to the traditional pension plans that were being offered by the employers in the country. These savings plans proved to be more advantageous with the various tax benefits and other benefits associated with them.
For the 403b plans, the total of the elective salary deferral and the matching employer contributions should not exceed a maximum of $49,000 for the year 2011. The matching contribution of the employer for this purpose should not exceed 25% of the salary of the employee. However, the actual contribution limit will be determined as the lesser of the includible compensation and $49,000.
Elective deferrals are the contributions that are made by the employer from the salary of the employee. The elective deferrals are not subject to tax and hence are not calculated as a part of the individual’s salary. The 403b contribution limits also state that for individuals who are above 50 years of age, they have an option to invest more towards the 403b plans. The additional amount that is allowed for these individuals is $5,500 above the $16,500 limit, for the year 2011. However, the employer who sponsors the individual must allow this provision for the individual.
One of the advantages of the 403b plan is that the money in the account grows tax-deferred. However, the 403b withdrawal rules state that the amount from the account is taxable as income tax in the hands of the individual. Also, if the withdrawal is made early (before the age of 59 ½), then there is an additional federal tax that will be charged on the amount before the income tax is charged. The 403b retirement plans are among the most popular retirement plans that are available today.
For more investing advice, visit Qwoter.com