403B Rules

In the US there are different types of retirement plans available to people. 403(b) plan is one such plan. This plan is also referred to as TSA or Tax sheltered annuity. It helps people save for retirement and helps them save on taxes in process. However, 403(b) plan is not open for everybody. It is available to people who are employed in organizations that are exempted from tax, i.e., certain non profit organizations. Other employees who can save through this retirement include specified employees of any public school. Some of the ministers are also entitled to save for retirement through 403(b).

There are similarities between 403(b) and 401(k) plans. Both are tax deferral plans. There are three types of accounts possible. One is an annuity account, which is provided by any insurance company. The second type of account is the custodial account. In this type of account, the funds are invested in mutual funds. Church employees such as ministers are entitled to invest in a special type of account that generates income at retirement.

There are rules applicable to 403(b). These include rules for taxes, loans, withdrawals, catch up, Roth and IRS rules, and rules relating to distribution. According to 403(b) rules, the monies invested in these retirement plans can normally be accessed on attaining 59 and half years of age. Alternately, the individual may be 55 years or older, and may have chosen to retire. Monies may also be withdrawn from this account on death of the contributor, or withdrawn as loans. However, if the person desires to pull out the monies saved under 403(b) plan before attaining 55 years of age then withdrawal has to be taken as SEPP or substantially equal periodic payment. This SEPP has to be taken continuously till the person reaches 59 and half years of age, or for five years, whichever of the two periods is later. It is also possible to withdraw the monies from this account if the contributor becomes disabled.

The rules relating withdrawals from 403(b) plans in form of loans are rather stringent. Not every vendor offering 403(b) plans allows such withdrawals. In any event, there are tax implications and 10 percent penalties imposed by IRS to consider. Such withdrawal is referred to hardship withdrawal rather than loan. The amounts may be withdrawn for medical expenses of the contributor, contributor's spouse, or children, provided such medical expenses are not reimbursed. The participant in such plans is also eligible to withdraw for down payment of primary residence, or for education expenses. In addition to these, if there is a possibility of foreclosure of primary residence, or eviction from such a place, then too the participant is eligible to withdraw monies from 403(b) plans.