What is this 403(b) plan?
Source : dwc401k.com
There are many retirement plans for the employees to get the benefit of the retired life, one of these plans is known as 403(b) plan which is also known as the TSA (tax sheltered annuity plan). This plan is applicable for the employees of the public school or some of the tax-exempt organizations. The individual accounts of a person going for this plan can be opened in following types and generally are called as “403(b) account”
- Annuity contract of insurance company
- An account of mutual funds
- An account which is been started for the retirement benefit transactions and their investment.
Benefits of these retirement plan
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The first benefit available is that these money you invest in the 403(b) account, it is exempted from the liability to pay income tax. There is no income tax payable on this amount until it is the time of withdrawal and the money is withdrawn.
The second benefit is that the tax is not to be levied at the time of investment but at the time of withdrawal and thus the tax liability can be deferred and the tax is paid afterwards.
Eligible employees to invest in the retirement benefits
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- Employees of the organization which is tax exempt established under section 501(c)(3).
- Employees of public schools and colleges who are involved into the day to day work
- Employees of co-operative hospital service organization
- Employees of public schools set up by the Indian tribal government.
- Certain categories of the ministers
Setting up of the 403(b) account
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No employee who wants to start can set up these accounts on his own but the account is needed to be set up by the employer. Similarly none of the self-employed minister will be allowed to set up the 403(b) account on his own for his own benefit, only the organization which is associated with the minister will be allowed to set up the account.
How to make contribution to this plan?
Source : askcorporate.ca
- Elective deferrals: In this type of the plan, some amount of the salary is to be deducted by the employer and after a certain period this is to be paid by him into the 403(b) account. If the contribution is Roth contribution then the tax will be paid at the time of the contribution to the account.
- Non elective deferrals: In this plan the contribution is not deducted from the salary by an employer and the amount is given by employer on his own, thus there will be no tax payable on the amount contributed by this way. The tax will be paid at the time of the withdrawals.
- After tax contribution: In this plan you include this contribution in the tax returns and also the tax will be paid before the amount is given as the contribution.
- A combination: There can be the combination of any of the plan or all of them to make a contribution.
- For self-employed ministers: the self-employed ministers are considered as both the employee as well the employer, so he can contribute on his own for his own benefits.