403(b) Retirement Plans Explained
Written on August 17, 2009 – 8:43 am | by admin
There are several differing types of tax-advantaged retirement savings plans available which take advantage of IRS tax codes. These plans allow for an employer to manage retirement savings for participating employees who contribute to the fund. The unifying characteristic of these plans is the employee’s ability to contribute income pre-income-tax, and have the tax on this income deferred until the funds become available through retirement. Most people are familiar with this concept through the widespread availability of 401(k) plans, which are offered by many employers.
403(b) retirement plans parallel the methods and advantages of 401(k) plans, but have some distinct advantages of their own. These plans, unlike 401(k) plans, are available only to certain types of employer. Qualifying employers include nonprofit employers who fall under 501(c) tax codes, self-employed clergy, certain hospital cooperatives, and public education institutions.
One advantage of plans which are governed by code 403(b) is an overall simplification in administration. So long as an employer allows participation in the plan by all employees of the organization, there are significantly fewer administrative requirements and considerably less stringent annual reporting for tax purposes.
For participants in 403(b) plans, there is additional flexibility in withdrawing funds from the accounts prior to the usual 59 ½ year old retirement restriction placed on 401(k) plans.