403b Plans - Another Great Way To Accumulate Wealth
403b plans are employer sponsored retirement plans that can only be used by tax-exempt organizations and public schools. Personal financial planning is all about saving for retirement, and these are one great way to do it. Types of organizations that could use these types of plans would include those that are organized and operated exclusively for: charity, religious, scientific, public safety testing, literary, or educational purposes. Funding vehicles. Funding this type of plan can be done by either purchasing an annuity contract from an insurance company or by purchasing shares in a mutual fund. A wide variety of annuity contracts can be used for these plans. Employee Contributions. Generally the money going into this type of plan is coming from the employee deferring part of their salary on a pre-tax basis. Earnings of course grow on a tax-deferred basis. This means that you won't have to pay taxes on the earnings each year, but you will eventually pay taxes on them when you withdraw them from the account. Contribution limits are essentially the same as for a 401K plan. For 2009, the employee can defer up to a maximum of $16,500. If the employee is age 50 or older in 2009, they can contribute an additional "catch-up" amount of $5,500. Employees can also make after-tax contributions in addition to the $16,500 pre-tax contribution limit. Total contribution limits to the plan are limited to $49,000 in 2009. This would include employee salary deferrals and any contributions made by the employer. Employer Contributions. An employer may elect to make matching contributions to an employees 403b plan. While this is not very common in my experience, it is optional for the employer. Doing this drastically changes the nature of the plan, subjecting it to ERISA laws and placing fiduciary responsibility on the plan sponsor. Also, an additional number of tax rules will apply. This may be the reason why most employers don't make contributions to 403b accounts. If you are a teacher or work for some other non-profit organization, talk to your personal financial planning advisor to find out how you can start saving through a 403b plan. Go From 403b Plans page back to Retirement Financial Planning page
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