Types of Retirement Plans - 403(b) Plans

A 403(b) is a retirement plan for certain employees of public schools, employees of certain tax-exempt organizations and certain ministers. It also is known as a tax-sheltered annuity (TSA).

Individual accounts in a 403(b) plan can be any of the following types:

  • An annuity contract, which is provided through an insurance company,
  • A custodial account, which is invested in mutual funds or;
  • A retirement income account set up for church employees. Generally, retirement income accounts can invest in either annuities or mutual funds.

The features of the 403(b) plan are very similar to the 401(k) plan. Employees may make salary deferral contributions that are limited. The 403(b) and the 401(k) are not identical. There are some key differences.

  1. Eligible employers - Public school systems and nonprofit institutions, including churches, hospitals, private schools and colleges, and charitable institutions tax-exempt under Section 501(c)(3) of the Internal Revenue Code.
    Look Out!
    Be familiar with the types of employers that may offer a 403(b) plan. In
    Particular, be aware that public schools - but not other government employers - may offer a 403(b) plan.
  2. Funding - A 403(b) plan may be funded entirely by employee contributions. An employer is not required to contribute.
  3. Catch-up provision - 403(b) plans carry an additional catch-up contributions provision beyond what is available also to other employer-sponsored retirement plans such as 401(k) plans.

This additional catch-up provision applies to employees who:

  • Have completed 15 years of service for the employer and
  • The employer is an:
    • Educational organization;
    • Hospital;
    • Home health care agency;
    • Healthy and welfare agency;
    • Or church, synagogue or related organization.

In these cases, the employee contribution limit is increased by the least of:

  • $3,000.
  • $15,000 reduced by the sum of:
    • The increases of the general limit allowed in prior years because of this provision, plus;
    • The aggregate amount of designated Roth contributions for prior tax years, or;
  • $5,000 times the employee's years of service for the organization minus all prior elective deferrals made by the employer on the employee's behalf in the prior years.

An employee who qualifies for the 15-year rule, may contribute up to $20,500 (2013) under this limit. In addition, another $5,000 may be contributed by participants 50 or older under the standard catch-up provisions available in retirement plans.

457 Plan
Related Articles
  1. Investing Basics

    Explaining Risk-Adjusted Return

    Risk-adjusted return is a measurement of risk for an investment or portfolio.
  2. Investing Basics

    Calculating the Margin of Safety

    Buying below the margin of safety minimizes the risk to the investor.
  3. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  4. Mutual Funds & ETFs

    ETF Analysis: Guggenheim Enhanced Short Dur

    Find out about the Guggenheim Enhanced Short Duration ETF, and learn detailed information about this fund that focuses on fixed-income securities.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares Morningstar Small-Cap Value

    Find out about the Shares Morningstar Small-Cap Value ETF, and learn detailed information about this exchange-traded fund that focuses on small-cap equities.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI KLD 400 Social

    Find out about the iShares MSCI KLD 400 Social exchange-traded fund, and learn detailed information about its characteristics, suitability and recommendations.
  7. Mutual Funds & ETFs

    ETF Analysis: Guggenheim BulletShrs 2018 HY CorpBd

    Find out about the Guggenheim BulletShares 2018 High Yield Corporate Bond ETF, and get information about this ETF that focuses on high-yield corporate bonds.
  8. Mutual Funds & ETFs

    ETF Analysis: PowerShares DWA SmallCap Momentum

    Find out about the PowerShares DWA SmallCap Momentum Portfolio ETF, and explore detailed analysis the fund's characteristics, suitability and recommendations.
  9. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
RELATED TERMS
  1. Net Line

    The amount of risk that an insurance company retains after subtracting ...
  2. Political Risk Insurance

    Coverage that provides financial protection to investors, financial ...
  3. Maximum Drawdown (MDD)

    The maximum loss from a peak to a trough of a portfolio, before ...
  4. Gross Exposure

    The absolute level of a fund's investments.
  5. Priori Loss Estimates

    A technique used by insurance companies to calculate loss reserves.
  6. Value Of Risk (VOR)

    The financial benefit that a risk-taking activity will bring ...
RELATED FAQS
  1. Is my IRA/Roth IRA FDIC-Insured?

    The Federal Deposit Insurance Corporation, or FDIC, is a government-run agency that provides protection against losses if ... Read Full Answer >>
  2. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  3. What are common delta hedging strategies?

    The term delta refers to the change in price of an underlying stock or exchange-traded fund (ETF) as compared to the corresponding ... Read Full Answer >>
  4. How does being overweight in a particular sector increase risk to a portfolio?

    An investor who is overweight in a particular sector risks a loss in value for the portfolio if there is a downturn in that ... Read Full Answer >>
  5. What are the primary risks an investor should consider when investing in the retail ...

    The retail sector consists of companies operating in multiple industries such as specialty retail, general retail, food and ... Read Full Answer >>
  6. What risks do I face when investing in the insurance sector?

    Like all equity investments, insurance companies present investors with market risk. Insurance companies, like banks, also ... Read Full Answer >>
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!