Retirement Plans for Non-Profit Organizations

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Employees of private corporations may invest in 401(k) retirement plans. However, employees of non-profit or not-for-profit organizations do not qualify for 401(k) plans. They do qualify for a retirement plan set up by the Internal Revenue Service just for them. Retirement plans for employees of non-profit and not-for-profit organizations fall under 403(b) of the IRS code.

The 403(b) Plan

This plan consists of tax-sheltered annuities. It may include insurance company annuity contracts, a custodial account investing in mutual funds, or a retirement income account set up for church employees.

Who Can Participate?

Employees eligible for 403(b) plan participation include individuals working for 501(c)3 non-profit charitable organizations, public school systems employees, cooperative hospital workers, Uniformed Services University of the Health Sciences civilian staff and Indian tribal government school employees. Self-employed ministers and those working for 501(c)3 charities may participate, along with chaplains working for organizations without 501(c)3 status who function as ministers in their day-to-day professional responsibilities.

Roth 403(b) Contributions

Starting in 2006, 403 (b) plans may accept designated Roth contributions. Individual nonprofit organizations must adopt this feature for employee eligibility. According to the IRS, employees may designate part or all of their elective contributions, also known as elective deferrals, as Roth contributions. These are included in the gross income, rather than as pre-tax contributions. Those 50 years old and above can contribute up to $22,000 in 2011 to the 403(b) plan, consisting up $16,500 in regular contributions and $5,500 catch-up. Those under 50 years old do not qualify for the catch-up contribution.

Contribution Reporting

Contributors do not report regular 403(b) contributions on the federal income tax return. The nonprofit employer reports contributions on the W-2 form, in box 12 for elective deferrals and box 13 for the retirement plan. However, self-employed ministers must report these contributions as tax deductions on the federal income tax form. Contributors report Roth 403(b) contributions on the return as gross income. Retirement withdrawals on these contributions do not fall subject to taxation. Unlike regular Individual Retirement Accounts or a 401(k) plans, withdrawing from the accounts by a certain age is unnecessary. Roth 403(b) accounts never require withdrawal.

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