Credit - 403(B) Plans

If your employer is a charitable, religious, or scientific organization; a public school or college; or a nonprofit hospital, you may have a 403(b) retirement plan available to you. These plans allow you to defer income up to $13,000 in 2004. Alternatively, if a lower contribution results, you could defer 100 percent of compensation (up to $41,000 if made collectively to more than one 403(b) plan). The plans also have catch-up provisions for those over the age of 50 or with 15-plus years of service, allowing the deferral of an additional $3,000 in 2004. Employers may make contributions as well, and as with your own deferrals, they will be made with before-tax money.

Contributions are generally made to mutual funds or a tax-sheltered annuity, which may be a fixed annuity or one with subaccounts similar to mutual funds, allowing you to have a diversified portfolio of investments. If you leave and go to another qualifying employer, your annuity or mutual fund investments can be transferred to that plan. Your contributions can then continue.

If you leave a qualifying employer and go to work at a nonqualifying employer, you can roll over your 403(b) balance tax-free to an IRA, a 401(k), or a 457 Government Plan.

Withdrawing Funds Prior to Retirement: If you take money out of a 403(b) Plan prior to the age of 591/2, the money distributed to you will be subject to ordinary income tax, plus a 10 percent penalty.

Exceptions: There are exceptions to this that allow you to avoid the penalty. For instance, if you are separated from your employment after reaching the age of 55 and take distributions as substantially equal periodic payments, or if you become disabled, die, or are required to make payments to an ex-spouse due to divorce (a qualified domestic relations order), or if you use the withdrawals to pay for medical expenses that exceed 7.5 percent of your adjusted gross income.

Loans: Generally, you are allowed to borrow as much as half your vested balance, but with a cap of $50,000. You are expected to pay back the loan over a five-year period, making payments of principal and interest. The interest is charged at a going market rate, generally prime plus one to two percentage points. If your purpose for the loan is a down payment on your primary residence, you can extend the payback period beyond the five years. Getting the loan can generally be quite easy and fast, requiring a phone call or downloaded form to make the request. Within a few days, a check is then sent to your address on record.

Distributions at Retirement: You must begin to take money out of a 403(b) Plan the later of April 1st of the year following the year you retire or of the year following the year you reach age 70. If you are using an annuity as your payout vehicle, you will typically have payment choices that are 1) for your lifetime (maximum income), 2) for the joint lives of you and your named beneficiary, or 3) for a certain period of time (but not longer than your life expectancy).

I got my free credit report at http://www.securecreditadvice.info, it is hands-down the most reputable credit report company online. Customer testimonials and feedback have been excellent for this company.

Related articles

• Credit - Getting Started, Part 1
• Credit - Getting Started, Part 2
• Credit - Current Techniques of Planning
• Credit Dilemma, Part 2
• Credit - A Whispering Slave
• Credit Dilemma, Part 1
• Employee Stock Ownership Plans (ESOPs)
• Credit Bonuses
• Credit - 403(B) Plans
• Credit Card Bandwagon