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403(b) Tax Deduction Rules

403b plans are retirement plans for employees of non-profits like schools and churches. 403b can either be traditional plans or Roth plans, each with different tax benefits.

  1. Traditional 403b Deduction

    • You can deduct the amount of money that you contribute from your taxes in the year that you contribute the money. The money grows tax free in the account until retirement. the contributions and earnings are taxed when the money is withdrawn.

    Roth 403b

    • There is no tax deduction for contributions to a Roth 403b when you make them. Instead, after growing tax-free in the account like contributions to a traditional 403b do, the contributions and earnings can be withdrawn tax-free.

    Contributions

    • Contributions to a 403b account can either be made through your employer or on your own. Contributions made by your employer by taking money out of your paycheck are known as elective deferrals. Contributions you make independently are known as after-tax contributions.

    Tax Reporting of Elective Deferrals

    • Elective deferrals are made by your employer with pre-tax dollars, unless you are making contributions to a Roth 403b, which means they do not get reported on your W-2 form as taxable income.

    Tax Reporting of After-Tax Contributions

    • If you make a contribution to your traditional 403b account with after-tax dollars, you can claim the contribution as an above the line deduction on your tax return.

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