403b Plan

A 403(b) plan (tax-sheltered annuity plan or TSA) is a retirement plan offered by public schools and certain charities. It’s similar to a 401(k) plan maintained by a for-profit entity. Just as with a 401(k) plan, a 403(b) plan lets employees defer some of their salary into individual accounts. The deferred salary is generally not subject to federal or state income tax until it’s distributed. However, a 403(b) plan may also offer designated Roth accounts. Salary contributed to a Roth account is taxed currently, but is tax-free (including earnings) when distributed.

Eligible employers are:

  • Public school, college, or university,
  • Church
  • Charitable entity tax-exempt under Section 501(c)(3) of the Internal Revenue Code

 

457 Deferred Compensation Plans

Plans of deferred compensation described in IRC section 457 are available for certain state and local governments and non-governmental entities tax exempt under IRC 501. They can be either eligible plans under IRC 457(b) or ineligible plans under IRC 457(f). Plans eligible under 457(b) allow employees of sponsoring organizations to defer income taxation on retirement savings into future years. Ineligible plans may trigger different tax treatment under IRC 457(f).

 

401k Plans

A 401(k) is a feature of a qualified profit-sharing plan that allows employees to contribute a portion of their wages to individual accounts.

Elective salary deferrals are excluded from the employee’s taxable income (except for designated Roth deferrals).

Employers can contribute to employees’ accounts.

Distributions, including earnings, are includible in taxable income at retirement (except for qualified distributions of designated Roth accounts).

 

Traditional and Roth IRAs

Traditional and Roth IRAs allow you to save money for retirement. This chart highlights some of their similarities and differences.

Features Traditional IRA Roth IRA
Who can contribute? You can contribute if you (or your spouse if filing jointly) have taxable compensation but not after you are age 70½ or older. You can contribute at any age if you (or your spouse if filing jointly) have taxable compensation and your modified adjusted gross income is below certain amounts (see 2014 and 2015 limits).
Are my contributions deductible? You can deduct your contributions if you qualify. Your contributions aren’t deductible.
How much can I contribute? The most you can contribute to all of your traditional and Roth IRAs is the smaller of:

  • $5,500 (for 2014 and 2015), or $6,500 if you’re age 50 or older by the end of the year; or
  • Your taxable compensation for the year.
What is the deadline to make contributions? Your tax return filing deadline (not including extensions). For example, you have until April 15, 2015, to make your 2014 contribution.
When can I withdraw money? You can withdraw money anytime.
Do I have to take required minimum distributions? You must start taking distributions by April 1 following the year in which you turn age 70½ and by December 31 of later years. Not required if you are the original owner.
Are my withdrawals and distributions taxable? Any deductible contributions and earnings you withdraw or that are distributed from your traditional IRA are taxable. Also, if you are under age 59 ½ you may have to pay an additional 10% tax for early withdrawals unless you qualify for an exception. None if it’s a qualified distribution (or a withdrawal that is a qualified distribution). Otherwise, part of the distribution or withdrawal may be taxable. If you are under age 59 ½, you may also have to pay an additional 10% tax for early withdrawals unless you qualify for an exception.

 

To learn more about the above retirement plans, fill out the form below: