403(b) retirement information
403(b) plans are retirement plans that are similar to 401(k) plans except they are offered to nonprofit employees. Depending on the type, there are tax benefits for using these plans.
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Types
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403(b) plans can either be traditional plans or Roth plans. Traditional plans use pretax dollars for contributions so you do not have to pay income tax on that money, but you do have to include it as income when you withdraw it. Roth plans offer no tax break for contributing, but the contributions and any earnings come out tax free.
Eligibility
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You can only have a 403(b) plan if you work for a nonprofit group, such as public schools, certain ministers and other 501(c)(3) organizations, and have an employer that sponsors a 403(b) plan. Your employer may only offer a traditional or Roth plan, in which case your types are limited.
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Tax-Sheltered Status
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Contributions to 403(b) plans are made with pretax dollars, meaning you do not pay income tax on that money. The contributions are made through your employer.
Distributions
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You can start taking distributions from your 403(b) retirement account when you turn 59 1/2, leave employment, suffer a disability or have a financial hardship. If you do not meet the qualifications for a distribution, you will have to pay an additional 10 percent penalty.
Required Distributions
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You must start taking minimum required distributions from your account when you reach age 70 1/2. The amount is determined by the IRS distribution tables and the value of your 403(b) plan.
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