403 (b) plan


A 403 (b) plan is one of the major types of retirement savings plans in the United States. It is mostly applicable for non-profit employers, public education organizations and self employed ministers. The terms and conditions of the 403 (b) plans are more or less similar to the 401 (K) plans.

In simple terms, the salary deferrals of the employees are made prior to the payments of the payments of the income taxes and they are allowed to grow. The money is taxed only when money is withdrawn. Presently, the 403 (b) plans also consist of Roth contributions or after tax contributions. If the applicants meet some requirements, tax free withdrawals are also allowed. The Roth contributions need to be in the plan for a period of at least 5 taxable years.

The difference that the 403 (b) plans have is that there are some more ways through which one can withdraw the employer contributions before the age of 59 ½. However, for that the plan needs to be funded with annuities.

Being a salary deferral contribution plan, 403(b) plans are subject to universal availability. In simple terms, it means that all employees will be allowed to make salary-deferral contributions. Another advantage is that 403(b) plans have simpler and less costly annual reporting needs as per the Internal Revenue Service.

A 403(b) plan is also sometimes referred to as a tax-sheltered annuity plan. It is applicable for employees of various tax-exempt organizations like colleges, universities, health care institutions and so on.