What Is IRS Publication 571: Tax-Sheltered Annuity Plans (403(b) Plans)?
IRS Publication 571: Tax-Sheltered Annuity Plans (403(b) Plans) provides tax information for filers who have a 403(b) retirement plan. IRS Publication 571 indicates who can contribute to a 403(b) plan, the maximum contribution that can be made to a 403(b) plan during the year, rules regarding excess contributions, and the rules regarding rollovers or distributions.
The 403(b) plan is a tax-advantaged retirement savings account, similar to a 401(k) plan. It is designed for certain employees of public schools and other tax-exempt organizations.
Contributions for a 403(b) plan are generally reported in an employee's W-2 by the employer and do not need to be reported by the individual employee to the IRS.
Understanding IRS Publication 571: Tax-Sheltered Annuity Plans (403(b) Plans)
While IRS Publication 571 does provide some information on rollovers and distributions of 403(b) accounts, it does not get into specific details. Specifics for rollovers can be found in IRS Publication 590, and information on distributions in Publication 575.
The IRS notes that a 403(b) plan, also known as a tax-sheltered annuity (TSA) plan, is a retirement plan for certain employees of public schools, employees of certain tax-exempt organizations, and certain ministers. Also eligible are cooperative hospital service organizations, civilian faculty, and staff of the Uniformed Services University of the Health Sciences, and employees of public school systems organized by Indian tribal governments.
Individual accounts in a 403(b) plan can be any of the following types:
- An annuity contract provided through an insurance company
- A custodial account invested in mutual funds
- A retirement income account set up for church employees
Generally, retirement income accounts can invest in either annuities or mutual funds.
Like a 401(k) or IRA, you don’t pay income tax on contributions until you begin making withdrawals from the plan, usually, after you retire. Account principal and returns are not taxed until you withdraw them.
Plan participants must begin taking required minimum distributions (RMDs) from their retirement accounts by April 1 following the year they reach age 73. (This age requirement was raised from 72 as of Jan. 1, 2023.)
According to the IRS, one additional benefit may be "if you or your employer make eligible contributions to a retirement plan, you may be able to take a credit of up to $1,000 (up to $2,000 if filing jointly) for 2022, and $2,000 ($4,000 if filing jointly) for 2023. This credit could reduce the federal income tax you pay dollar for dollar." This is called the saver's tax credit.
There are limits on adjusted gross income for the credit, however. For the 2022 tax year, married couples filing jointly are eligible if their incomes do not exceed $68,000. For 2023, the limit rises to $73,000. For 2022, singles and married couples filing jointly can claim the credit if their income does not exceed $34,000. This increases in the 2023 tax year to $36,500.
Roth versions of the 403(b) may be available, allowing you to contribute after-tax money that can grow with no taxes upon withdrawal of principal or returns.