For all employers, offering retirement benefits can play a For all employers, offering retirement benefits can play a fundamental role in recruiting and retaining qualified employees. Yet, despite the obvious advantages that come with helping workers save for retirement, we believe, many not-for-profit organizations neglect to provide a retirement plan or do too little to assist workers in reaching their retirement savings goals.

One of the simplest options for nonprofits wishing to provide employees with access to a tax-advantaged retirement plan is the 403(b) arrangement, which can be attractive due to tax laws.

Available to public schools and organizations that qualify as nonprofits under section 501(c)(3) of the Internal Revenue Code. The 403(b) plan is often regarded as the equivalent of the 401(k) for the not-for-profit sector. Over the years, the tax laws have been amended to bring 403(b) plan features more into line with those of 401(k) plans, but important differences remain.

Contributions and Distributions

Because contributions to a 403(b) plan are typically made on a pre-tax basis, money going into the plan is deducted from the employee’s salary before federal income taxes. Consequently, by lowering taxable salary, participants are able to lower their federal income tax each year they participate in the plan. Money contributed to a 403(b) account grows tax-deferred until retirement, when qualified distributions are taxed as ordinary income.

Withdrawals from a 403(b) account prior to age 59½ are only available under certain circumstances, such as a participant becoming disabled or experiencing hardship. Early withdrawals may be subject to a 10% federal income tax penalty, unless a qualified exception applies.

Some 403(b) plans allow employees to borrow money from their accounts under certain circumstances, but these loans must be paid back with interest. Since January 2006, 403(b) providers may also give participants the option of making elective contributions using after-tax dollars to Roth 403(b) accounts, but is tax-free (including earnings) when distributed.

The Pension Protection Act of 2006 made permanent the previously enhanced annual contribution limit for both 401(k)s and 403(b)s, with adjustments for inflation. The 2022 elective deferral limit is set at $20,500 for workers under age 50, with a $6,500 annual catch-up contribution allowed for workers over age 50. In certain cases, employees who have been with eligible employers for at least 15 years also may be permitted to make an additional contribution.

The law further permits 403(b) plan providers to expand the circumstances under which participants may make hardship withdrawals without incurring penalties to include crises or hardships befalling not just participants and their dependents, but also domestic partners and certain non-dependents. 

401(k) vs 403(b)

There are, however, some significant differences between 401(k) and 403(b) plans. For employers, establishing a 403(b) plan can be considerably easier than sponsoring a 401(k) plan. Unlike 401(k) plans, 403(b) arrangements are not necessarily governed by the complex requirements of the Employment Retirement Income Security Act.

To set up a 403(b) plan that receives only elective-deferral contributions, the nonprofit organization chooses the financial institutions that will be responsible for establishing and administering the accounts, arranges for the payroll administrator to deduct contributions from employees’ paychecks, notifies employees of their provider options, and explains to employees how salary deferrals can be arranged. The employer is generally required to offer all employees the opportunity to make 403(b) plan salary-deferral contributions.

Employers may choose to contribute to employee 403(b) accounts, usually by matching a percentage of employee contributions. But if the employer makes contributions, the 403(b) plan becomes subject to ERISA, which imposes discrimination testing, as well as other restrictions and reporting requirements.

Unlike many 401(k) plans, most 403(b) plans have no vesting schedule. The participant is, therefore, automatically entitled to all the funds in the account, including employer contributions, regardless of his or her length of service. Tax-free rollovers to IRAs and most employment-based retirement plans are allowed when the participant moves to another organization.

While 403(b) plan participants were originally permitted to invest their savings exclusively in variable or fixed annuity contracts with insurance companies, participants may now invest directly with mutual fund companies. Many nonprofits have a list of approved 403(b) investment product vendors from which participants may choose. But because many nonprofits have selected insurance companies as their primary approved 403(b) providers, participants often fail to take advantage of the mutual fund alternative, and continue to put most of their money in annuities.

Although nonprofits that offer employees access to 403(b) plans with no employer contributions do not have the same fiduciary responsibilities as 401(k) plan sponsors, organizations should nonetheless make an effort to educate employees participating in 403(b) plans about the fees, surrender charges, and risks associated with each investment option.

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Source Links:

https://www.ebri.org/docs/default-source/fast-facts/ff-318-k-40year-5nov18.pdf

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-403b-contribution-limits

https://www.hrc.org/resources/domestic-partner-benefits-hardship-withdrawal-option-for-retirement-plans

This material waThis material was created to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation.

A 403(b) plan (tax-sheltered annuity plan or TSA) is a retirement plan offered by public schools and certain charities. It's similar to a 401(k) plan maintained by a for-profit entity. Just as with a 401(k) plan, a 403(b) plan lets employees defer some of their salary into individual accounts. The deferred salary is generally not subject to federal or state income tax until it's distributed. However, a 403(b) plan may also offer designated Roth accounts. Salary contributed to a Roth account is taxed currently but is tax-free (including earnings) when distributed.

Mutual funds are sold by prospectus only. Before investing, investors should carefully consider the investment objectives, risks, charges and expenses of a mutual fund. The fund prospectus provides this and other important information. Please contact your representative or the Company to obtain a prospectus. Please read the prospectus carefully before investing or sending money.

An annuity is a contract between you and an insurance company. All guarantees and protections are subject to the claims-paying ability of the issuing insurance company, but the guarantees do not apply to any variable accounts, which are subject to investment risk, including the possible loss of principal. For further information please consult your financial advisor.

Before rolling assets over from a qualified plan, you should consider various factors. These factors include but are not limited to the following: Investment Choices, Fees and Expenses, Services provided by new option, Penalty-Free withdrawals, Required Minimum Distributions, and Tax considerations. Speak to a tax professional about your individual situation before taking any action.

With 7x California State Championships and 17 Individual State Champions, the Buchanan High School Wrestling Team has the unique advantage of having such a rich history in the sport, and a fantastic district which strives to give the school the opportunity to be the best.  We’re happy to support the Buchanan Bears and their pursuit of excellence.  We recently participated in their 4^th Annual Golf Tournament, where 100% of the profits were used to support all 55+ athletes on the roster. Supporting local community is important to us at Strong Valley.

Do you ever feel that no matter how much money you earn, it’s never enough? Do you spend beyond your means, but still aren’t satisfied?

Even financially successful people struggle with a sense of scarcity. We might say that money, status and success don’t lead to increased happiness, but many of us still unconsciously think that more is always better.

People of all incomes face social pressure and visions of a more expensive lifestyle. Getting bombarded by endless advertising encouraging consumption doesn’t help. As financial advisors, we often see people across a wide range of income levels living beyond their means and accumulating possessions or expensive habits that don’t bring genuine, long-lasting life satisfaction.

Pursuing Happiness

Here are some ways to avoid pursuing happiness through buying stuff.

Recognize that you have enough and know you are not alone. The annual Consumer Electronics Show in Las Vegas promotes the latest and greatest electronic gadgets. But interestingly, the new products don’t get people pumped to spend money. Research from the NPD group indicated 68% of consumers are just fine with their current gizmos and feel no need to spend any more of their hard-earned money on new devices. It turns out a lot of us already intuitively know what we want. And it’s not more.

Remind yourself that appreciation is an incredibly powerful tool. Next time you feel stressed about something, challenge yourself to sit down and literally count three blessings – and realize how fortunate you are.

If the Joneses have a better car and a bigger house, and you feel unlucky, you need to put things into perspective. Surrounded by so much, it’s easy to get a skewed perspective on what is enough.

Making a Plan

Face your financial fears with care, awareness and careful judgment. To heal your relationship with money, you need to take a gentle approach to your financial fears. For so many of us, these fears are rooted in primal places. Our unconscious beliefs about money are often related to a sense of power and identity. The core of inner healing is about recovering the truth of who you are and what you desire.

We all deal with a variety of financial fears. Some people are often afraid to ask for a raise and avoid talking about their money concerns because they don’t want to feel like they are a burden on our families. There’s also a fear that you can suddenly become destitute. These fears make it harder to plan and live life to the fullest.

Feeling like you are incomplete or personally lacking is a big drain on your productivity and happiness. Invest a bit of time in thinking about what having enough means to you.