Saving money for retirement is a very important aspect. Generally, this is the difference between a person enjoying happy retirement and a retired life that is full of hardships. Retirement investing has been around for many years now. Although pension funds and pension plans have been around for a much longer duration, the concept of investing for retirement was introduced relatively recently. The 401k plan was one of the first retirement plans that became widely accepted. The 403b retirement plans are another type of retirement plans that are very popular as well.
Benefits of the 403b Retirement Plans
403b retirement plans are plans that have a tax advantage with respect to the savings. These plans are available from public education organizations, a few nonprofit organizations, and a few other organizations as well. The benefits and the rules regarding the 403b retirements plans are identical to the benefits and the regulations of the 401k retirement plans.
The contributions to the 403b plan are tax deferred. In other words, the contributions that are made towards the IRA accounts of the 403b plan are not taxable. Employee salary deferrals are put into the 403b plans before any tax is paid or calculated. This amount then grows in the account tax-deferred. There is also an option where ‘after-tax’ contributions can be made towards these accounts as well. These amounts will not attract any federal or income tax when they are withdrawn from the account at a later date, if certain conditions are satisfied.
Things to know about the 403b Retirement Plan
The most important rules regarding the 403b retirement plans are the ones about the contribution limits, the withdrawal limits, and the penalties or income tax and federal tax rules.
For the year 2011, the maximum 403b contribution limits towards the 403b plan is $16,500 and for persons aged over 50 years, the maximum contribution is limited to $22,000. Employers may also contribute a matching amount into the IRA accounts which is limited to 25% of the individual’s income. The total contribution is limited to $49,000 which includes the salary deferrals as well as the employer contributions. The contributions of the individual towards the 403b plan are not subject to any income tax or federal tax.
Concerning the 403b withdrawal rules, a person can withdraw from the account when he or she attains the age of 59 ½. The withdrawals from the 403b account are taxable as income tax. There is a provision to allow the funds to grow in the account for a longer period. However, when the person attains the age of 70 ½ years, regular distributions become mandatory. The amount of the distribution is calculated based on the life expectancy and the value of the funds in the account.
Early retirement planning is essential in order to be able to enjoy a happy retirement. There are many ‘vehicles’ of investment that are available to save for retirement. The 403b retirement plan and the 401k retirement plan are some of them. Finding the best IRA Company is one of the ways to make sure that you get the best retirement plan available.