A 403(b) plan, also known as a tax-sheltered annuity (TSA) plan, is a retirement plan for certain employees of public schools, employees of certain 'tax-exempt' organizations and certain ministers of the clergy. 403(b) plans come in various forms such as:

• A 'custodial account' that is largely invested in mutual funds


• An 'annuity contract' provided through an insurance company


• A 'retirement income account' set up for church employees

The features of the 403(b) plan are very similar to that of a 401(k) plan. Employees may make income deferral contributions that are usually limited by caps placed by the US Government. Generally speaking, retirement income accounts will invest in either annuities or mutual funds. Keep in mind that income you've contributed to your 403(b) plan may not be taken out before the age of 59 1/2, or termination of employment, without some sort of tax penalty (usually a 10% penalty), except for certain hardship situations. Also, your employer may determine the financial institution(s) at which individual employees may maintain their 403(b) accounts.

A common question asked is: why should you consider a 403(b) account? If you are an employer consider that 403(b) accounts could be an attractive benefit that helps keep your high-value employees happy. With 403(b) accounts, there is also a shared cost of funding between the employers and employees. Keep in mind though that in certain cases, only employees contribute to the 403(b) plan.

If you are an employee you could enjoy the benefit of reduced taxable income based on the amount of your pre-tax contributions. Also consider that any tax you would have had to pay on contributed dollars is deferred. Also consider that you will more than likely pay less tax on assets overall as your distributions will usually occur during retirement, when you may be in a lower tax bracket. And don't forget the ability to take loans from your 403(b) accounts!

Getting your head around various 403(b) options can be difficult at best, www.retireology.com is here to help answer some of the important questions and give you more info about 403(b) plans!