403(b) Plan: Conclusion
A 403(b) plan is a retirement plan for certain employees of public schools, certain ministers and employees of certain tax-exempt organizations.
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 $255,000 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.