FFM - 403(B) Plans

“Many of my family members were educators. I can appreciate first hand the value of 403(b) plans. They're a great saving device.”

Mark R. Fielder
President, FFM, LTD.

Section 403(b) plans are only available to employees at public education and 501(c)(3) tax exempt organizations. Public Education employees include teachers, school administrators and other non-academic positions held within the school system, while 501(c)(3) participants would be employed by colleges and universities, certain charitable institutions, hospitals and nursing homes.

403(b) plans are commonly referred to as "Tax Deferred Annuities" and therefore, are generally purchased through an insurance company in the form of a Fixed, Variable or Equity Linked annuity plan.

As with most tax-qualified plans, they share the commonality of voluntary salary reduction, pre-tax contributions, tax deferred accumulation until withdrawn .

Currently, the Internal Revenue Code applys two (2) limits: A: The IRC Section 402(g) "elective deferral limit" and B. The IRC Section 415(c) "percentage of compensation" limit. For the 2009 tax year, the contribution limit is 100% of adjusted gross income (up to $49,000), or a maximum of $16,500 per year.

Please note that contributions to a 403(b) plan are NOT offset by contributions to a 457 plan. Therefore, employees can maximize contributions in both of these plans. For example, for tax year 2009, a participant could elect to contribute up to $16,500 to a 403(b) plan AND up to $16,500 to a 457 plan, for a total contribution of up to $33,000.

Contributions to a 403(b) plan are offset by any contributions to a 401(k) plan in the same tax year. Employees contributing to both a 403(b) and 401(k) plan are restricted by IRS regulations to a combined total of $16,500 for the 2009 tax year.

Additional Catch-Up Provisions

Under IRC Code Section 402(g)(7), employees that have at least 15 years of service (full-time equivalent) AND have not maximized the annual contribution limits during this time, may be eligible to contribute an additional $3,000 per tax year for up to five years (or a total of $15,000). To take advantage of this additional catch-up allowance, proof of 15 years of service is required.

The age 50 catch-up is an age based catch-up allowance under IRC section 414(v). For 2009, this provision allows employees that are or will turn age 50 by the end of the current tax year (December 31) to contribute an additional $5,500 to a 403(b) plan or to a 401(k) plan and also contribute an additional $5,500 to a 457 plan.

If an employee qualifies for both of the catch-up provisions, additional contributions will be first applied to the 15 year catch-up allowance and then to the age based catch-up provision.

Generally, 403(b) plan assets can be distributed after the participant attains age 59-1/2 to avoid a premature withdrawal penalty. However, certain conditions will allow withdrawals prior to that age to be made without penalty, which include death, disability, hardship and/or service separation (after age 55).

Distributions for 403(b) plans are also generally taxed at ordinary income tax rates when received, presumably when you are in a lower tax bracket.

Action To Take

We work with many 403(b) providers. In fact, we have found that many of the plans we recommend are already on the 'approved list' of the employer you work for.

If you are interested in evaluating the 403(b) eligible plans we offer, please click HERE.

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Securities are offered through Girard Securities, Inc. member FINRA, SIPC.
Mark R. Fielder, Registered Principal. CA. Insurance Lic. # 0690576.

Disclosure: Variable Annuities are long-term investments designed for retirement purposes and are subject to market fluctuations, investment risks and possible loss of principal. For more complete information about variable annuities, including charges and expenses, obtain a prospectus by calling 1-800-480-7526. Read it carefully before you invest or send money. Withdrawals may be subject to income tax and a 10% IRS imposed penalty may apply on withdrawals made prior to age 59-1/2. Consult your tax advisor.