The 403(b) retirement plan is popular with educators and ministers. The 403(b) is one retirement plan offer to most employees of educational institutions and non-profit organizations as defined by Internal Revenue Code (IRC) 501(c) (3). Investments by employers and contributions by the employee into a 403(b) are allowed to grow tax deferred until funds are withdrawn. The assumption is this will occur at the time and age of retirement. However, withdrawals even as retirement will be taxed as regular income. The use of a 403(b) only delays payment of taxes till a later time. For more details concerning 403(b) plan, IRS Publication 571 provides IRS details. You can obtain this document by calling 1-800-289-3676, or on the internet at www.irs.gov/publications/p571/.
The popular 401 (k) retirement plan is another pretax qualified deferred plan. In this plan, employees can elect to have a portion of their wages deposited into this plan in pre tax dollars. Usually the dollars deposited, commonly referred to as elective contributions, are not subject to tax at the time of deposit, and are not reported on the employee’s 1040 tax form. Therefore, it is not reported on employee’s W-2 forms. On the downside; these elected contributions are subject to income tax withholding at the time of deferment. They are also included as wages subject to social security, Medicare, and federal unemployment taxes.
Contributions to a 401(K) plan are not limitless. Limitations on allowable amounts are spelled out in IRS Publication 525; Taxable and Nontaxable Income. Publications 560, Retirement Plans for Small Business; (SEP, SIMPLE, and QUALIFIED PLANS), explain setting up and maintaining plans for employees involved in 401(k) plans.
One retirement aspect which could be to the advantage to retires, and non-retirees alike are the ability to withdraw lump sums from 401(k) retirement accounts. In today’s job changing environment, 401(k) accounts can be rolled over to a new employer, or into a more private system.
Comparatively speaking, both 401(k)’s, and 403(b)’s offer strong support and opportunities for workers, depending on their type of employment. For people working within educational systems, ministries, and I.R.S. approved industries; participation in 403(b) Retirement Plans could be very appealing toward retirement income.
In private sector industries, contributing to a 401(k) Retirement Plans offer a notable system of building a nest egg of size to be used in retirement years or for an emergency.
No comments:
Post a Comment