What is a section 403(b) Plan?

A salary deferral or reduction plans in which employees allocate a portion of their pre-tax compensation to the 403(b) plan. A 403(b)is usually purchased under an annuity investment vehicle.

Eligible Organizations

A Section 403(b) plan, tax-sheltered annuity, tax-sheltered custodial account, tax-deferred annuity, or tax-deferred custodial account are all names for a retirement plan available only to employees of:

  • Section 501(c)(3) tax-exempt Organzations
  • Public education organzations
  • Tax Advantages include:
  • Contributions to the plan are excludable from the employee’s gross income up to contribution limit
  • Earnings are taz-deferred until takes as a distribution


Annual Limit Table:

Deferral limit      Deferral Limit

Year     Under age 50     Age 50 and Over

2008    $15,500             $20,500

2009    $16,500             $22,000

2010    $16,500             $22,000

2011    $16,500             $22,000


Qualified Distribution

The employee may withdraw funds from a 403(b) plan at any time after reaching age 59½. If the employee withdraws funds before reaching age 59½, he or she must pay a 10% penalty tax in addition to the regular income tax on the distribution, unless the distribution—

• following the owner/employee’s death;

• following the owner’s disability

• is part of a series of substantially equal periodic payments made not less frequently than annually for the life (or life expectancy) of the owner or for the joint lives (or joint life expectancies) of the owner and his or her designated beneficiary;

• following the employee’s separation from the employer maintaining the plan after the owner has reached age 55;

• is taken to pay the owner’s deductible medical expenses (or those of a family member) and does not exceed the amount deductible under IRC Sec. 213 (i.e., only those medical expenses paid out-of-pocket and not covered by insurance that exceed 7.5% of AGI);

• is transferred directly or properly rolled over within the 60-day rollover period

• represents a nontaxable return of the owner’s nondeductible contributions.


The information above is for sole purpose of information only and is not intended or is in anyway a contract.

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