403(b) Plans

The 403(b) is a tax deferred retirement plan available to employees of educational institutions and certain non-profit organizations. Participants contribute to either annuity contracts with insurance companies or invest in mutual funds. Contributions and investment earnings grow tax deferred until withdrawal (assumed to be retirement), at which time they are taxed as ordinary income.

The name 403(b) refers to the relevant section in the Internal Revenue Code. You can obtain a copy of the IRS Publication 571, which discusses the 403(b) plan in detail by calling 1-800-829-3676 or it may be downloaded by clicking on IRS Publications and scrolling to Publication 571 Tax Sheltered Annuity Programs.

403(b)(7) Plan

Detailed Summary
Plan Size
Educational Institutions and certain non-profit organizations of all sizes

Plan Adoption And Contribution Deadline

Must be established by the employer's fiscal year end. Employer matching contributions, if applicable, must be made by end of employer's fiscal year, including extensions
Employee pre-tax salary deferrals must be deposited by 15th business day following the month of deferral, or sooner if administratively feasible

Employee Eligibility Requirements

Any employee 21 years old with 1,000 hours of service per year for two or more years must be eligible for the plan

Funding
Employee-funded
Employer contributions are optional, but if used will require compliance testing

Maximum Annual Contributions

Maximum employee annual contribution is $10,500, subject to certain limitations in Maximum Exclusion Allowance (maximum contribution number) such as salary, years of service with current employer and prior tax deferred contributions
A Special "catch-up election" allows participant to increase elective deferral limit for any calendar year by $3,000 more than the indexed limit. To qualify participant must have completed at least 15 years of service with the same employer. (The years of service need not be consecutive). In most cases, contributions made under this catch-up provision cannot exceed $3,000 per year, up to a a $15,000 lifetime maximum (under current rules)
Refer to IRS Publication 571 on IRS Publications Web site and scrolling to Publication 571

Withdrawals And Loans

Withdrawals are taxed as ordinary income and are subject to a 10% tax penalty unless taken after the attainment of age 59.5 or because of death or disability
Availability of loans and hardship withdrawals

Administration And Reporting

Required filing of IRS Form 5500
Requires a Summary Plan Description and a Summary Annual Report

Back to 401k / 403b / 457b - Pension Plans

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