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      403(b) FAQs

  1. How much money can I put into my 403(b) account?
  2. What amount should I save?
  3. What if my plan doesn't offer some investments that I want?
  4. If my company has a match, how is it determined?
  5. Can I stop contributing for a while if I feel I can't afford it?
  6. Can I withdraw money from my account while I am still working?
  7. What happens to my 403(b) account balances if I choose to leave or am fired from the company?
  8. If I leave my company, how long can my former employer hold my account balance?
  9. I still have a retirement account with my former employer. Can I transfer it into my IRA? Can I transfer it to my current employer's 403(b) plan?
  10. What are the general rules on 403(b) loans?

How much money can I put into my 403(b) account?

The maximum pretax contribution dollar amount is set by law and adjusted for inflation annually. The 2013 pretax contribution limit is $17,500. If you are age 50 or older you may also make an additional catch-up contribution of $5,500 per year. In 403(b) plans, there is also an additional “lifetime catch-up” provision that allows some employees with more than 15 years of service with their organization to contribute an amount beyond the standard and catch-up contribution amounts. Together, the catch-up and lifetime catch-up contributions in a 403(b) plan can add up to a powerful savings boost for employees approaching retirement. Some plans may offer the option of contributing on an after-tax basis, which is not included in the limits.

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What amount should I save?

Retirement planning experts advise saving between 15 and 20% of your income for your entire working career. Even if you can't afford to start off saving this much, you should at least join the plan and contribute as much as you can afford, and then find ways to increase your contribution whenever possible. If your company offers a match, you should contribute at least enough to maximize that match. For example, if your company matches 50 cents on the dollar up to 6% of your contributions, you should contribute at least 6%. If you think you can't find room in your budget to save, click here for some ideas.

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What is the difference between investing pretax and post-tax contributions?

Pretax contributions and their earnings are taxed only when you withdraw them. Since the money that would normally be paid in taxes is part of your contribution into the plan, your money adds up quickly. However, if you need to withdraw money prior to age 59 1/2; you may incur a 10% penalty, and owe income taxes on the money you take out. Post-tax contributions (e.g., "Roth" contributions) are taxed before they are put into the plan. Although you won't owe taxes on your contributions when you take a distribution, you will be taxed on the earnings and may be subject to a penalty on the interest earned if you take your money out of the plan before age 59 1/2.

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What if my plan doesn't offer all of the investments that I want?

It is your employer's fiduciary responsibility to provide funds in the 403(b) plan that are competitive in both fees and performance. If there is an investment that you do not have access to within your plan, or you do not feel the funds available are competitive, talk to your Human Resources or Benefits Department. Direct investment into stocks is generally not allowed within 403(b) plans. You may also open an Individual Retirement Account (IRA) to seek other investment options outside of your 403(b) Plan.

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If my company has a match, how is it determined?

There are different methods used to determine the amount your company may contribute to the plan on your behalf, and your company may use one of these more common methods:

  • fixed percentage: your company decides to contribute a percentage of what you put into the plan (e.g., your company contributes 25% on each dollar, up to 6% of deferrals
  • guaranteed percentage: your company contributes a predetermined percentage of your pay (e.g., 2% of pay)
  • discretionary percentage: your company contributes a percentage of your pay generally based on company profits and subject to change each year

Be sure that you contribute at least the amount that will ensure you get your company's full match. Not participating or not contributing enough to receive the full match amount is turning down free money!

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Can I stop contributing for a while if I feel I can't afford it?

Employers are not required by law to allow this. However, most plans do allow you to stop contributing at any time. Some plans may require you to contribute at least a certain percentage for a full plan year, so be sure to check your Summary Plan Description (SPD) regarding the timing of starting and stopping contributions into the plan.

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Can I withdraw money from my account while I am still working?

Most plans do not allow this. While some plans offer loans allowing you to borrow money from your 403(b) account, taking a loan can be a bad idea. Even though you're paying yourself back with interest, any amount you remove from your account decreases the "earning power" your money has in the plan. Also, since you pay yourself back with after-tax payments back into the plan, your loan money gets taxed twice: once when you're repaying your loan, and again when you take distribution of your funds (ideally, starting when you retire). Also, any part of the loan that you fail to pay back is considered income and will be subject to taxes and penalties when you file your tax return for that year.

If your plan doesn't offer loans, you may be able to request a hardship distribution if no other resources are available to you. According to the IRS, the following reasons would qualify for a hardship distribution:

  • Medical expenses incurred by you, your spouse, children, dependents, beneficiaries beyond what is covered by insurance
  • Purchase of primary residence
  • Payment of tuition for post-secondary education for you or your spouse, children, dependents or beneficiaries for the next semester or scholastic period
  • Prevention of eviction from your primary residence or foreclosure of the mortgage on your primary residence
  • Payment of funeral or burial expenses for your spouse, children, my dependents, parents, or beneficiaries
  • Payment of repair to your primary residence that qualifies for the casualty deduction of Internal Revenue Code Section 165

You need to check your plan document or ask your Human Resources department for further information regarding loans and hardship distributions.

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What happens to my 403(b) account if I choose to leave or I am fired from the company?

Your distribution options are the same whether you voluntarily leave or are terminated, but your distribution must be made according to the timing rules specified by your plan. Upon termination, you are eligible to receive your vested account balance. You earn "vesting" with years of service, so the amount of time you have been with your company may affect the amount of 403(b) money you can take with you when you leave.

  • If your account balance is more than $5,000.00, you can leave your money in the plan, but be sure to keep your former employer up to date on your address so you continue to receive any communication about the plan.
  • If you want to take your money with you, your vested account balance can, in many cases, be rolled into another retirement plan with a new employer or put into an Individual Retirement Account (IRA).
  • You can also take a cash distribution, but be prepared for taxes to be withheld from it before you receive the money, and for possible pentalties if you are under age 59 1/2.

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If I leave my company, how long can my former company hold my account balance?

Your plan document provides the timeframe. You can find this information in your Summary Plan Description (SPD). Companies can determine account balances at many different intervals: annually, quarterly, monthly and daily, to name a few. Your distribution cannot be made until this determination, called a "valuation" has been done. For example, in plans that are valued annually, your distribution cannot be paid out until after the valuation has been completed for the previous plan year. While many 403(b) plans are valued on a daily basis, not all of them are, so you shouldn't expect immediate payout of your account after you leave the company. How your money is invested can also affect how long it will take for you to get your distribution, since your investments need to be liquidated (converted to cash) before they can be paid out. While most investments can be liquidated quickly, a few, such as some real estate investments, may take longer. Also, you need to consider the time it takes to process your distribution paperwork. This can take a few days to a few weeks, depending on how your plan is managed. Finally, in rare cases, distributions are not made until the participant has reached retirement age, (holding true to the concept of a retirement plan) usually defined as age 65, even if the participant terminated employment much earlier. This is why it is important to check your SPD for the timing of distributions before requesting the distribution forms.

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I still have a retirement account with my former employer. Can I transfer it into my current employer's 403(b) plan? Can I transfer it into my IRA?

Account balances from previous employers' 403(b) and 401(k) plans can, in most cases, be rolled into another retirement plan with your current employer or put into an Individual Retirement Account (IRA). These rollover distributions are tax-free, if the transfer between the two plans is handled properly. Generally, you avoid taxation if funds go directly from the old plan to the new one. Check this rollover chart to see if the type of plan you had at a previous employer is eligible to be rolled into the type of plan you have with your current employer. Retirement experts advise rolling money either into an IRA or your new employer's plan when you leave a company, to minimize the chances that you lose track of what's out there, or previous employers lose track of you, which puts your account in jeopardy. If you have retirement plan money you'd like to roll over into your current employer's plan, you'll probably need to fill out two sets of forms: one to release the money from the old plan and one to accept the rollover into your current plan. Contact your plan administrators to request the rollover forms. There are specific rules about how rollover checks are handled, so make sure you take all of the necessary steps to avoid being taxed on your distribution.

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What are the general rules regarding loans from 403(b) plans?

While companies are allowed to offer loans in 403(b) plans, they are not required to do so. Your Summary Plan Description (SPD) will state whether or not your employer allows loans in your plan. Generally, loans must be repaid within five years, although for first-time home purchases, the repayment term can be longer. You are allowed to borrow up to 50% of your vested account balance to a maximum of $50,000. Many plans also set a minimum amount and restrict the number of loans you can have at any one time. Loan payments are usually deducted from your paycheck. If you are married, you may need your spouse to sign a consent form. If you terminate your employment, any unpaid portion of your loan(s) will be considered income and be subject to taxation and, if you are under age 59 1/2, an additional penalty.

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