403b plan Frequently Asked Questions What is a 403(b) tax deferred annuity plan?

403(b) plans are usually offered to the employees of universities, hospitals and not-for-profit institutions. They allow participants to save for retirement now and pay taxes later by contributing a portion of their salaries to the plan. Some employers who sponsor a 403(b) plan help by making contributions on their employee's behalf.

Your 403(b) plan may offer investment options through:

a group fixed and variable deferred annuity, or

a selection of retail mutual funds, or

a combination of both.

How are contributions to my tax deferred annuity plan invested?

Money you contribute is invested at your direction in one or more of a variety of investment options offered by your plan. These options are managed by some of the most reputable and recognized names in the mutual fund industry.

Most plans offer annuity contracts with both fixed and variable investment options. The fixed options guarantee principal and interest. The variable options provide "variable" returns, which are not guaranteed. The rate of return you receive on a variable option may increase or decrease depending upon the performance of the investments in the underlying portfolio.

The selection of investment options available to you may change from time to time.

How much can I contribute on a tax-deferred basis?

Generally, in 2007 you may contribute to your 403(b) plan the lesser of $15,500 or 100% of compensation, unless you are eligible for Catch-up Contributions of $5,000 additional ($20,500 total).

Contribution Limits Table Click here

 

If you leave your current employer, you have some choices to make about your plan. Generally, you may:

Leave your money invested in the plan until your required distribution date.

Transfer your vested assets into your new employer's tax deferred annuity plan.

Withdraw your money, subject to withdrawal charges and/or fees., distributions are taxable, penalties may apply.

Roll your vested account balance into an IRA subject to withdrawal charges and/or fees.

How can I access the money I have in the plan?

Loans from your account may be available. And contributions and earnings accumulated in a IRC 403(b)(1) annuity contract on or before December 31, 1988, may be withdrawn at any time.

Withdrawals of amounts in or transferred from a IRC 403(b)(7) custodial account, as well as annuity contributions and earnings accumulated in your account after December 31, 1988, may be withdrawn only upon the following qualifying events:

• Death of participant
• Total and permanent disability as defined by IRS regulations
• Retirement
• Termination of service as defined by IRS regulations
• Financial hardship(1) as defined by IRS regulations
• Age 59 1/2 as defined by IRS regulations

Ordinary income taxes will apply to each withdrawal. Withdrawals received prior to age 59 1/2 may be assessed a 10% federal income tax penalty.

When am I required to withdraw my money?

You are required to begin receiving benefit payments from your account the later of April 1 of the calendar year following the calendar year in which you:

• attain age 70 1/2, or
• separate from service with the employer sponsoring your plan.

Failure to begin minimum distributions when required subjects you to IRS penalties equal to 50 percent of the amount that should have been withdrawn but wasn't.

What happens if I leave my current employer?

If you leave your current employer, you have some choices to make about your plan. Generally, you may:

Leave your money invested in the plan until your required distribution date.

Transfer your vested assets into your new employer's tax deferred annuity plan.

Withdraw your money, subject to withdrawal charges and/or fees., distributions are taxable, penalties may apply.

Roll your vested account balance into an IRA subject to withdrawal charges and/or fees.

Withdrawals are subject to ordinary income taxes. Withdrawals received prior to age 59 1/2 may be assessed a 10% federal income tax penalty.

What happens to my 403(b) plan when I die?

Benefits payable upon your death, if any, depend on the allocation of your investment options.

Group fixed and variable deferred annuity

The death benefit available for money you have invested in options under a group fixed and variable deferred annuity depends on your age at death and whether or not your annuity payments have started. In general, at your death, the money invested in your plan will be paid to your designated beneficiary according to the death benefit provisions in the annuity contract.

Mutual funds (403(b)(7) custodial account)

The account value in mutual funds as of the date of death will be paid to your designated beneficiary.

All death benefits will be paid in accordance with the payout method you have selected. If you die before selecting a payout method, your beneficiary will be allowed to select one for the distribution of your remaining account value.