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 many group retirement plans in the Southwest and leverage our experience to help make this benefit fruitful 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 403(b) plan is a qualified employer-sponsored retirement plan authorized under Section 403(b) of the Internal Revenue Code. It is designed to help eligible employees of certain tax-exempt organizations, public schools, and certain ministers save for retirement throughout their working years. A 403(b) plan is considered a defined contribution plan, meaning the retirement benefit is based on contributions made to the account and the investment performance of those contributions. Unlike a traditional pension plan, which generally provides a defined retirement benefit, a 403(b) plan does not guarantee a specific level of income in retirement. Instead, participants accumulate retirement savings through employee contributions and, in some cases, employer contributions during their working years.

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 key benefits of a 403(b) plan is that employees may be able to make contributions on a pre-tax basis. Generally, pre-tax contributions reduce current federal taxable income, which may lower an employee's current-year tax liability. Assets in the account accumulate on a tax-deferred basis, meaning taxes are generally not due on earnings as they accumulate. When funds are withdrawn from a traditional 403(b), distributions are generally subject to ordinary income tax. Withdrawals taken before age 59½ may also be subject to an additional 10% federal tax penalty unless an exception applies.

              Many 403(b) plans also offer a Roth contribution option. Roth contributions are made with after-tax dollars and do not reduce current taxable income. The benefit of a Roth account is that qualified distributions, including earnings, may be received income tax-free if certain requirements are met, generally including attainment of age 59½ and satisfaction of the applicable five-year holding period.

             In some cases, employers may also make matching or other contributions to a participant's account. Employer contributions can help increase retirement savings and are generally subject to applicable tax rules when distributed. The availability and structure of employer contributions vary by plan.

                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 employed by the organization sponsoring your 403(b) plan, you may be eligible to roll over your account balance to an Individual Retirement Account (IRA). To maintain the tax treatment of the assets, pre-tax 403(b) assets are generally rolled into a traditional IRA, while Roth 403(b) assets are generally rolled into a Roth IRA. When completed properly as a direct rollover, the transaction generally does not result in current income taxation. However, certain rules and administrative procedures apply when completing a rollover.

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

Important Rollover Considerations: Before rolling assets from an employer-sponsored retirement plan to an IRA, investors should consider factors such as fees and expenses, available investment options, services, withdrawal provisions, creditor protections, and required minimum distribution rules. A rollover is not the only available option and may not be appropriate for every investor. Individuals should carefully evaluate their circumstances and consult with appropriate tax and financial professionals before making a rollover decision.