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  • Writer's pictureMichelle Marsh

The A to Z of 403(b): A Guide to This Unique Plan

Welcome to your guide on 403(b) plans—the retirement solution designed specifically for nonprofit organizations, educational institutions, and religious organizations. While these plans share similarities with corporate retirement plans, they also come with their own set of rules and considerations. In this comprehensive overview, we explore the unique aspects of 403(b) plans and walk you through everything you need to know as a plan sponsor. Let's get started and uncover the powerful possibilities of 403(b) plans. 

Blue leather book with "403(b) plan" written on it next to stack of cash


What are 403(b) Plans and Who Can Use Them?

403(b) plans, also known as tax-sheltered annuity plans, are retirement plans available to employees of certain 501(c)(3) tax-exempt nonprofit organizations, educational institutions, and religious organizations. These plans allow employees to save for retirement on a tax-deferred basis, meaning anything they contribute reduces their taxable income in the present and they pay taxes on distributions once retired. 


Understanding the Rules of 403(b) Plans

Just like any retirement plan, 403(b) plans come with specific rules and regulations that govern their operation. However, because 403(b) plans apply to a unique group, the requirements differ from those of a 401(k) that a corporation would use. Let's break down these rules so you can maximize the benefits of participating in a 403(b) plan. 


Contribution Limits

As of 2024, the maximum amount that employees can contribute to a 403(b) each year is $23,000. For participants 50 years of age or older, the contribution limit increases to $30,500.  Also, this plan type allows the sponsor to provide an additional $3,000 past the standard limit if they’ve worked for the organization for at least 15 years. These limits ensure that employees can save effectively for their retirement while receiving tax benefits.  

 Employees can begin withdrawing funds penalty-free after reaching the age of 59½. 


Investment Options

One of the key advantages of 403(b) plans is the array of investment options available to participants. Employees have the flexibility to choose from mutual funds to annuities, selecting investments that align with their risk tolerance and financial goals. This diversity of investment options empowers employees to create a well-rounded investment portfolio within their 403(b) plan. 


Non-Discrimination Testing

Unlike their 401(k) counterparts, 403(b) plans are not always subject to annual non-discrimination testing. If the employer offers matching contributions, then yes, they must follow ERISA guidelines and conduct tests to comply with their fiduciary responsibilities. Plans that do not apply matching contributions are exempt from non-discrimination testing. However, they must allow all participants the ability to participate immediately upon being hired. 


RPCSI: Here to Support 403(b) Plan Sponsors

403(b) plans offer a unique retirement solution for employees of nonprofit organizations, educational institutions, and more. That said, understanding the nuances of 403(b) plans can be difficult for individuals new to the role of plan sponsor.  RPCSI is here to provide comprehensive insights and support. As experts in retirement plan administration certified by the Centre of Fiduciary Excellence (CEFEX), we can help you design and manage a retirement plan that will benefit you and your employees while also maintaining compliance. If you're considering a 403(b) plan, don't hesitate to reach out to us for personalized assistance and consultation. Let's build a secure financial future together. 

Safe Harbor vs Traditional 401(k): What's the difference? Download our infographic to find out! Click here to download


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