By Brian Hepp Market Matters
When it comes to building a nest egg for your future, there are various savings options available including IRAs, stock and bond investments, as well as employer sponsored 401(k) and 403(b) plans. With so many choices out there, it is important for you to select what’s right for you. Your age, occupation and financial goals are just some of the things that come into play when choosing an investment strategy.
As an example let’s say that you are in your mid-twenties and have just started working at a local non-profit organization. You’ve heard an earful about the importance of starting a retirement savings plan at a young age, but you aren’t sure what is available to you. A good place to start may be your employer sponsored retirement savings plan, such as a 403(b).
A 403(b) plan is a voluntary, tax-advantaged retirement savings program that can be offered only to qualifying nonprofit organizations including school systems, educational institutions, humane societies, social welfare agencies, charitable institutions, museums and universities.
Your employer may sponsor one of two types of 403(b) plans. The first type of 403(b) is called a non-ERISA (for the Employee Retirement Income Security Act) plan. This means that your participation is entirely voluntary and your employer will not contribute to the plan. Contributions are made on a pretax basis through a salary reduction agreement between you and your employer. It is important to remember that the amount taken out of your salary will be considered part of your wages for purposes of determining Social Security and unemployment taxes.
The second type of 403(b) is called an ERISA plan. This means that your plan can be funded with employer matching contributions, employer discretionary contributions, as well as employee pre-tax contributions, employee after-tax contributions or a combination thereof.
No matter which type of 403(b) plan you participate in, the employee pre-tax contribution limit is the same.
For 2007, you will be able to contribute up to 100 percent of your compensation or $15,500, whichever is less. Remember that the money you contribute is 100 percent vested, which means that it belongs to you from the time that you make the contribution. The money your employer contributes may be subject to a vesting schedule, which means that you may have to be employed for a certain length of time before you have full access to the employer contributions in the account.
BRIAN HEPP is a financial consultant and (310) 453-0077 or at
Originally published in the Santa Monica Daily Press print edition on May 9, 2007. Read the original PDF.