403b Plans

Your Dedicated Non-Profit Retirement Plan Consultant

             Before hiring an advisor for you 403(b) plan, you should ask them, “How many group retirement plans do you work with?”  At Retirement Wealth Partners, we work with over 70 group retirement plans in the Southwest and leverage our experience to make this benefit as fruitful as possible to you and your employees.  Contact us if you have any specific questions about your plan and we would be happy to schedule a meeting with you. 

What is a 403b plan?

             A 403b plan is a qualified group retirement plan articulated in the Internal Revenue Code section 403(b).  It is a plan that helps non-profit employees save for retirement throughout their working years.  A 403(B) plan is considered a defined contribution plan, meaning the benefit is correlated to how much the employee and employer contribute into the account.  A 403(b) plan is different from a pension plan as it does not guarantee a specific benefit in retirement, but instead allows the employee to contribute throughout their working career.

Should I start a 401k or a 403b for my non-profit

             This is a question we get often from our non-profit business owners.  There are a lot of similarities between a 401(k) and a 403(b).  One of the benefits of a 403(b) is that a 403(b) does not have to complete the Actual Deferral Percentage test each year while a 401(k) does.  This means that if your nonprofit has a large number of Highly Compensated Employees, a 403(b) may be the better option.  One downside is that there are less recordkeepers that support 403(b) plans (establish start up plans).

               There are additional nuances that could determine if a 401(k) or a 403(b) is best for you and your employees.  We would love to sit down with you and plan out which one is right for you!

Are 403b contributions tax deductible - employee and employer?

              One of the great benefits of a 403(b) plan is that employees can make contributions on a pre-tax basis.  What does this mean?  It means that when you contribute to your 403(b) on a pre-tax or traditional basis, you do not have to pay state or federal income taxes.  This makes your contribution tax deductible as it reduces your tax liability for the current year.  The funds grow on a tax deferred basis, which means that you will have to pay income tax when the funds are withdrawn in retirement after you turn 59 and ½ years old.

               However, many plans allow a Roth contribution as well.  If you contribute on a Roth basis, your contribution is not tax deductible for your current year.  The benefit of a Roth account is that after you pay federal and state income taxes, withdrawals from this account can be tax free if you are over 59 and ½, retired, and had the account at least 5 years.

               The same is true for the employer match.  If the match is contributed on a pre-tax basis, they do not have to pay Medicare or social security tax on the match.  These tax advantages are a great reason to offer this plan for your employees.

                It is important to note, that Retirement Wealth Partners are not accountants. Please consult your tax preparer to validate any information regarding you tax liability.

Where should I be to stay on track with my 403b account?

             To shed light on whether you are on track, we’ll have to do the math. There are a few popular formulas you can use: the Rule of 4 Percent, Multiply by 25 Percent Rule, or the Retirement Account Multiple (RAM).

              Fortunately, there are a lot of easy-to-use calculators on this website that will help you get a sense of whether you are on track. You just need to plug in some basic information.

                If you have any specific questions, we are here to help!  Give us a call and we can talk through your savings plan and give some insights on if you are track for retirement.

Who gets my 403b account if i die?

               This is a hard question as it can be difficult to think about your own mortality.  However, it is an important topic that is often overlooked.  You can add a primary and contingent beneficiary onto your 403(b) plan to reduce any unintended consequences.  When you invest in a beneficiary-named financial account, such as a 403(b), you should name the individuals or institutions you want to receive the assets in the account when you die.

                These are designated as your primary beneficiaries. A contingent beneficiary is someone or something that receives the benefits of an account if the primary beneficiary can't or won't do so after the account owner's death. Contingent beneficiaries stand in the wings, next in line to inherit assets if something should go wrong. Think of them as a backup plan.

Things to know when designating your 403b Beneficiary:

• Don’t leave the beneficiary form blank! Failing to name a beneficiary is a big mistake because doing so could deprive your heirs or loved ones of inheriting your retirement assets. Another downside is that your retirement assets would go through probate, which is basically the legal process of proving a will, a lengthy and possibly costly, process which will delay your assets being distributed.
• Don’t designate your estate as the beneficiary. Although it can be, your estate should never be the named beneficiary of a 403(b). To do that, either on purpose or simply by failing to name a beneficiary, means the 403(b) money will be disposed of by probate court, which may also delay the distribution for your heirs for months or even years.
• Beneficiary designations take precedence over wills. Retirement assets are distributed according to the named beneficiary, regardless of other agreements such as wills. So don’t assume if you have a will, that your wishes will be carried out if they don’t jive with the beneficiary form on your 403(b) accounts.
• Keep your beneficiary designations current. Many people fail to update their beneficiary designations after major life events, such as: marriage, divorce, new additions to the family, relationship changes, death to a named beneficiary
• Lastly, consult an expert if you aren’t sure who to name as your beneficiary. Experts would include an estate attorney or a tax professional.

can a 403b be rolled into an iRA

                Yes!  When you are no longer working for the employer that sponsors your 403(b) you are able to rollover your 403(b) account into an Individual Retirement Account (IRA).  The account has to rollover in kind, meaning a Roth account to a Roth IRA and a pre-tax account to a pre-tax IRA.  This rollover does not create any taxation but there are a number of steps necessary to complete this administrative action.

                Call Retirement Wealth Partners so we can help you navigate this process with your 403(b) record keeper and open an IRA for you.