Do you work at a school, non-profit hospital, religious
organization or other non-profit group?
Do you work at a school, non-profit hospital, religious organization or other non-profit group?
If so, you may be participating in a 403(b) retirement plan. You’ve always gotten a lot of key benefits from your 403(b) – and now it offers even more.
Before we talk about some of the new laws that have made 403(b) plans more attractive, let’s review the chief attributes of this type of account.
– Tax-deferred earnings
Your 403(b) earnings grow on a tax-deferred basis, so your money will accumulate faster than it would if it were placed in an investment on which you paid taxes every year.
– Pre-tax contributions
Because you contribute pre-tax dollars to your 403(b), you’ll lower your adjusted gross income.
– Automatic payroll deductions
With all the expenses of daily living, it’s hard for many of us to save for retirement. But your employer deducts money for your 403(b) from your paycheck, so you never miss a chance to help build up your savings.
– Tax-free transfers
Participants in a 403(b) may transfer to another 403(b) at any time, tax-free, without a triggering event, such as one’s employment termination, retirement or death, that can initiate a distribution from a qualified plan.
As you can see, your 403(b) offers a variety of key benefits. And now, thanks to some new laws, 403(b) plans are even more user-friendly.
Among these changes, perhaps the most noticeable is the higher contribution limits. In 2003, you can put up to $12,000 in your 403(b). The $12,000 ceiling will increase by $1,000 per year until 2006. Furthermore, if you’re 50 or older, you can exceed the contribution limit by $2,000 in 2003; this “catch-up” amount will also increase by $1,000 per year until 2006.
Depending on where you work, you may even save much more. Many state and local governments offer 457(b) plans – another tax-advantaged retirement account – to government employees, including some who are also eligible for 403(b) plans.
In the past, if you participated in a 403(b), you could not make the maximum contribution to a 457(b). But now, thanks to the new tax laws, you may be able to contribute the maximum to both plans – which would mean a huge boost to your retirement savings.
The new laws also permit greater “portability” of your 403(b). Now, when you leave your job, you can “roll over” the funds in your 403(b) into an IRA, or into any type of qualified retirement plan, such as a 401(k). However, some employer-sponsored retirement plans may not accept these rollovers.
You can also move money the other way, by directing 401(k) or IRA distributions into your 403(b).
The advantages of 403(b) portability are clear. If you change jobs, you’ll be able to immediately place a large amount of money in your new employer’s plan, allowing you to maximize the potential tax-deferred earnings growth. Plus, by consolidating your savings into one plan, you can cut down on paperwork – and possibly the expenses associated with maintaining individual plans.
There’s never been a better time to contribute to your 403(b) plan. It’s always been a great way to build resources for retirement – and now, with higher contribution limits and increased portability, it’s more valuable than ever.
Financial Focus is provided by Mark Vivian, a representative of Edward Jones Financial Services. His office is at 615 San Benito St., Suite 105. Phone 634-0694.
