403(b) Plan: Conclusion

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By Denise Appleby

A 403(b) plan is a retirement plan for certain employees of public schools, certain ministers and employees of certain tax-exempt organizations.

Let's recap:

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

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

  • The features of the 403(b) plan are very similar to the 401(k) plan.
  • Employees' compensation is based on W-2 wages, and an employee's compensation in excess of $245,000 may not be considered for purposes of making a 403(b) contribution.
  • The investment options for a 403(b) account are determined by the 403(b) product.

    • A 403(b) annuity contract must invest in an annuity product provided through an insurance company.
    • A custodial account, which is provided through a retirement account custodian, must invest in regulated investment companies, such as mutual funds.
    • A retirement income account may invest in vehicles such as annuities and publicly traded securities. Only churches and church-related organizations may establish retirement income accounts.
  • Distributions while the employee is under age 59.5 are subject to a 10% early-distribution penalty unless the employee qualifies for an exception.


by

Denise Appleby

Denise Appleby
Denise Appleby is founder and owner of Appleby Retirement Consulting,which provides technical consultation, content, coaching, writing, editing and training services on related topics.


With more than 14 years of experience in the IRA and defined-contribution plans fields, Appleby has held several senior retirement-plan related positions with Pershing LLC, which included vice president of plans products and services, retirement plans manager, trainer, training manager, compliance consultant, technical help desk manager and writer.
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