Byline: Tracey Westfield, Communications Associate
During the month of June, we are exploring the voluntary retirement plans (VRPs) offered to faculty and staff at the University of Missouri (UM). We will review one plan each Friday to help you make the best decision possible for your investment needs.
UM offers three voluntary retirement plans: 401(a) Supplemental Retirement Plan, 403(b) and 457(b). Last week, I described our 457(b) plan. Today, let’s talk about the 403(b) VRP.
What is the 403(b) plan?
A 403(b) plan is a retirement plan sponsored by non-profit employers. Like other VRPs offered by UM, our 403(b) plan is “participant directed,” meaning an individual account is set up for you and you decide how to invest your contributions and earnings. You are immediately 100 percent vested in your contributions to any of the plans. Vested means you can keep the money.
You can choose to use the 403(b) plan for all of your retirement contributions, or you can mix and match with other VRPs offered by UM. You can contribute from 1 percent to a large portion of your pay on a pretax or after-tax basis. A few key attributes set our VRPs apart from one another:
- When you are taxed
- Annual contribution limits
- Who is eligible
- When you can make withdrawals
- When contribution changes take effect
In this article, I’ll discuss each of these attributes relative to the 403(b), but another great resource is the “UM Voluntary Retirement Plans (VRP) Highlights” chart, available as a PDF on the Total Rewards website.
When is the 403(b) plan taxed?
The 403(b) offers both pretax and after-tax options:
- 403(b) pretax – You pay no income taxes on any contributions or investment earnings until you make a withdrawal.
- 403(b) after-tax – You pay the taxes now, as contributions are made. Then, withdrawals are not taxed at retirement. Certain conditions must be met.
- 403(b) pretax irrevocable –The irrevocable provision is pretax, but differs from the other pretax provision in two ways:
- It requires that you set your contribution election once, after which it may not be changed unless you end employment with UM. The election must be set on or before your first day of employment. (See the “Who is eligible…” section below for details.)
- It offers a higher contribution limit, as described next.
How much can I contribute to a 403(b) plan?
Contribution limits depend on which provision of the 403(b) plan you want to participate in.
- Pretax and after-tax plans– The IRS has set a $17,500 contribution limit (pre-tax and after-tax combined) for 2014. If you are 50 years old or older, you can choose to contribute an additional $5,500 to “catch up” on your retirement savings.
- Pretax irrevocable plan– The 2014 contribution limit is $52,000.
Who is eligible to participate in a 403(b) plan at UM?
Any faculty or staff member, except someone in a student appointment, is eligible to participate in a 403(b) plan. Contrary to UM’s core retirement plans, you do not have to be considered benefit-eligible to participate in the 403(b) VRP. But be aware that should you wish to enroll in the irrevocable provision of the 403(b) plan, you may only do so as a newly hired faculty or staff member. Your enrollment must be processed on or before the first day of your employment.
When can I make withdrawals from the plan?
At age 59½, separation from service, or at retirement, you may withdraw from your 403(b) plan.
If I make changes to my 403(b) contributions, when do they take place?
The rules for making changes to your contributions differ based on the provision of the 403(b) plan you are participating in:
- Pretax and after-tax plans– Contribution changes may be made at any time and will be processed on the next available payroll period.
- Pretax irrevocable plan– As the term “irrevocable” implies, you cannot make changes to your contributions. Once you decide to participate and set the amount you want to have deducted from your paycheck, you cannot change these elections unless you end your employment with the university.
Does UM contribute to my 403(b) plan?
No. UM contributes to your core retirement plan. UM offers the 403(b) plan as an additional tool for you to save for retirement, but UM does not make contributions.
Why would I choose the 403(b) plan over the other VRPs UM offers?
It is impossible to recommend one plan over another since every person’s retirement goals and financial situation are different. My best advice is to schedule a one-on-one consultation with a Fidelity Investments and/or TIAA-CREF retirement representative. (Fidelity administers the three VRP plans. TIAA-CREF annuities are available as investment options in the 403(b) plan.)
General characteristics of the 403(b):
- May have more withdrawal flexibility than the 457(b) or the 401(a) supplemental plan.
- People might consider the irrevocable option if they want a higher annual contribution limit. (Only available to new hires.)
- The 403(b) VRP allows investment in TIAA-CREF annuities.
- The 403(b) allows you to take out a loan against your account, which might be an appealing option for people who wish to have access to their funds prior to age 59½. Though, taking a loan from your retirement account can erode your income in retirement and comes with other restrictions. Talk with a Fidelity or TIAA-CREF representative for more information.
Each Friday this month, we will explore the voluntary retirement plans: 401(a) supplemental plan, 403(b) and 457(b). Be sure to subscribe to our blog to have these valuable articles brought directly to your inbox! Go to the blog’s homepage, and use the “Subscribe” field on the right-hand side.
- Start contributing now—or manage your existing account—using UM’s Voluntary Retirement Plans portal, from Fidelity.
- Schedule a one-on-one consultation with a retirement representative.
- Read past articles in this VRP series:
- Download our info sheet “UM Voluntary Retirement Plans (VRP) Highlights” (PDF).
- More UM retirement plan info.
- To determine if a pretax or after-tax 403(b) plan is right for you, try Fidelity’s Roth calculator, which is found on their Roth 401(k)/ 403(b)/ governmental 457(b) webpage.
- Learn more about our 403(b) plan administrators: Fidelity and TIAA-CREF.