Have you ever wondered why your spouse or friends are saving in a different type of retirement plan than you are?
Many employers help employees save for retirement by offering a retirement plan that allows them to set aside a portion of each paycheck for retirement. But depending on the type of employer you work for, you may be saving in a 401(k) plan, a 403(b) plan (also called a tax-sheltered annuity), or a Governmental 457(b) plan (also called a deferred compensation plan).
Each of these savings arrangements is designed to help you fund your retirement and enjoy tax benefits for doing so. All of these plans also include these great features:
- Your contributions are made through payroll deduction—a convenient way to save.
- Your taxable income is reduced because contributions are deducted from your paycheck on a pre-tax basis.
- You won’t pay tax on any investment earnings until you take money out of the plan.
- A plan may allow you to make Roth contributions, which come out of your paycheck after taxes have been withheld. In exchange, you can generally take these savings and their investment earnings out of the retirement plan tax-free in retirement.
- You can take your savings with you if you change jobs or retire.
Your ultimate retirement benefit from these types of plans depends on the amount you and your employer contribute, and any investment gains or losses within your account.
ERISA 403(b) plans, which are described in the chart, are typically sponsored by higher education institutions such as universities, or by 501(c)(3) non-profit companies such as healthcare providers. These plans are run very similar to 401(k) plans, with the employer overseeing plan operations and choosing a menu of investment options to be offered in the plan.
There is another type of 403(b), sometimes referred to as a non-ERISA 403(b) or tax-sheltered annuity (TSA) plan, that is common in public education institutions like K-12 school districts. These plans are subject to a different set of rules that permit only employee contributions and minimal employer involvement in the administration of the plan. The plan may allow participants to purchase annuity contracts and other investments from a broad range of investment providers.
If you work for more than one employer, you may be able to participate in the retirement plans of both employers, but your savings limit may be different depending upon which plans you participate in, and your contributions may have to be combined when calculating certain limits each year.
For example, if you work as a teacher and you serve at a local restaurant, you may participate in both the school district’s 403(b) plan and the restaurant’s 401(k) plan. But the portion of your wages you contribute to these two plans cannot exceed $19,000 in total for 2019 (plus catch-up contributions, if you are over age 50). This is not the case with governmental 457(b) plans.
ROLLOVER OF 403(B) ASSETS TO 401(K) PLAN
A rollover from a 403(b) plan to a 401(k) plan is considered a plan distribution and can only take place after an employee’s separation of service or if in-service distributions are permitted by the plan. Once their eligibility has been established, employees have two options to perform a rollover from their 403(b) plan: a direct rollover or a 60-day indirect rollover.
There are pros and cons to direct and indirect rollovers. With a direct rollover, the employee does not have to redeposit rolled-over assets and risk causing a taxable event, and there is no withholding for federal taxes at the time of the rollover. On the other hand, indirect rollovers may speed up the rollover process. Your preferences help determine the best option at the time. Contact your tax advisor or financial consultant for help with specific tax questions.
GET STARTED OR GET HELP
No matter what kind retirement plan type is available to you, it’s important to start saving as soon as possible. Enroll today before another day goes by. It’s the smart thing to do and it’s quick and easy. If you’re already in the plan, Log in and make sure your savings are still on track. If you have questions, our Retirement Specialists are here to help. Call us at
The information provided is not written or intended as specific tax or legal advice. MassMutual, its subsidiaries, employees and representatives are not authorized to give tax or legal advice. Individuals are encouraged to see advice from their own tax or legal counsel.
© 2019 Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001. All rights reserved. www.massmutual.com.