TAX-DEFERRED RETIREMENT - 403b AND 457 PLANS
403(b) Plan Document
403b’s are also known as Tax Sheltered Annuities (TSA). 403b/TSA plans are retirement for schools, hospitals, and non-profit organizations.
For the most part 403b’s follow most of the same rules and regulations as 401k plans.
- 403b plan can be combined with a 457 plan.
- The program is voluntary.
- Employees who want to participate in a TSA designate a portion of their salary to contribute on a per pay basis.
- Contributions are pre-taxed and are automatically deducted from the payroll. State Federal income taxes are then calculated on remaining pay. Pre-tax contributions lower taxable income.
- Contributions to your TSA are not taxed until money is withdrawn.
As a plan participant, you will benefit in many ways
- Reduce your taxable income while saving pre-tax dollars.
- Gain interest in your tax deferred investment.
- Select the investment companies and funds you want to participate in.
- Access your money through loans and withdrawals when necessary.
- Have contributions automatically deducted from your paycheck.
Dividends and investment earnings grow tax deferred until they are withdrawn after age 59 ½ at which time the withdrawals will be taxed as income. Withdrawals prior to age 50 ½ usually incur an additional 10% penalty. However, most 403b plans allow investors to take out a loan. Both principal and interest are paid back to your 403b account through automatic payroll deduction.
If you are still employed at HCC, you may be able to take withdrawals from a 403b before age 59 ½ and not incur the 10% penalty. Federal and state taxes will apply.In general, you can withdraw your contributions (not any dividends or investment earnings) under the following circumstances:
- You are permanently disabled.
- Distributions to your beneficiaries can be made in the event of your death.
- You buy a home as your principal residence,(not a second or vacation home) with a $10,000 maximum.
- Pay medical expenses for you or a dependent that weren’t covered by insurance.
- Qualified educational expenses for yourself or a dependent.
- Make overdue rent or mortgage payments to prevent your eviction or home foreclosure.
You choose whether you participate. You control your own investments basedupon:
- your risk objectives
- your risk tolerance
- your own time horizon
DOLLAR COST AVERAGING:
Because employee contributions are typically a percentage of fixed amount of salary, which remains fairly constant from paycheck to paycheck, the deductions are the same every pay period.
This systematic investing strategy is called Dollar-Cost Averaging. When you invest the same amount of money at regular intervals – as you will with a salary reduction program – over time, as the market steadily rises – you are likely to end up buying more shares when prices are low and fewer when prices rise.
The college does not advise you concerning amounts to be sheltered nor does it assume any responsibility for your program. The College services only as an agent between you and you company/agent.