403b Plans

 

403b Plans (written variously as a 403b or 403 b plan) is a retirement account for certain employees of public schools and tax-exempt organizations. Participants include teachers, school administrators, professors, government employees, nurses, doctors, and librarians. Religious ministers may also participate in these plans. Note, however, that there’s a special plan type—a 403(b)(9)—that’s designed specifically for employees of religious institutions.

 

Compare IRAs and 401(k)/403(b)

Roth IRATraditional IRA401(k)/403(b)
ContributionsAfter-taxPre-taxPre-tax
WithdrawalsTax-freeTaxableTaxable
Limits on 403b plans$6,000 for 2019 and 2020 (If you’re 50+, you can contribute an additional $1,000)$6,000 for 2019 and 2020 (If you’re 50+, you can contribute an additional $1,000)$19,000 for 2019 and $19,500 for 2020 (If you’re 50+, you can contribute an additional $6,000 for 2019 and $6,500 for 2020)
Age you can start distributionsAny759 ½59 ½
Required minimum distribution ageNone72*72*
Account is controlled byYouYouYour employer

KEY TAKEAWAYS

  • 403(b)s resemble 401(k)s, but they serve employees of public schools and tax-exempt organizations rather than private-sector workers.

  • The advantages of a 403(b) compared to a 401(k) can include faster vesting of your funds and the ability to make additional catch-up contributions

  • Investment choices may be more limited with a 403(b), however, and some accounts offer less protection from creditors than 401(k)s.

Understanding the 403(b) Plan

The features and advantages of a California 403(b) Plans plan are largely similar to those found in a 401(k) plan. Both have the same basic contribution limits—$19,500 in 2020. The combination of employee and employer contributions are limited to the lesser of $57,000 in 2020 ($56,000 in 2019) or 100% of the employee’s most recent yearly salary.2 Both also offer Roth options and require participants to reach age 59½ to withdraw funds without incurring a penalty.3 Like a 401(k), the 403(b) plan offers $6,500 catch-up contributions for those age 50 and older ($6,000 in 2019). It also offers a special plan for those with 15 or more years of service with the same employer (see below).

Though it is not very common, your job situation could end up giving you access to both a 401(k) and a 403(b) plan. In these cases, employees may contribute to both accounts. However, your aggregate contribution to both plans cannot be more than the $19,500 ($19,000 in 2019) limit, not counting any 401(k) catch-up contribution.

Consulting one of our trained professionals given your personal business situation would be advisable. California 403(b) Plans

California Business Benefits has a business alliance with a very reputable RIA advisory firm, The Financial Management Network, Inc. All securities transactions are carried out through FMN. http://www.fmncc.com/