What Is a 403B Plan?
Only for-profit corporations can offer their employees the ability to participate in a 401k plan. To allow nonprofit organizations to assist their employees with saving for retirement, the Internal Revenue Service allows them to instead offer 403b plans.
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Types
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Organizations can offer traditional 403b plans, which offer tax-deferred savings, and Roth 403b plans, which offer after-tax savings. Both plans are tax-sheltered, meaning the money in the account grows tax-free.
Size
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403b plans have the same contribution limits as 401k plans. As of 2010, employees younger than the age 50 can contribute up to $16,500, employees 50 and older can contribute up to $22,000, and the total of employee and employer contributions cannot exceed $49,000.
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Considerations
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Money in a 403b plan can only be invested in mutual funds and annuities; fixed rate annuities or variable rate annuities are acceptable.
Time Frame
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Qualified withdrawals can be taken from the account after the employee turns 59 1/2 or if the employee retires after turning 55 years old. Taxable early distributions are subject to an additional 10 percent early withdrawal penalty.
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