These four questions cover the basics of 403(b) plans.
Learn more at about 403(b) Plans.
Review the answers
c) 403(b) plans allow eligible participants to make pretax contributions to the plan. Contributions and earnings grow tax-deferred and are taxed at ordinary income tax rates when withdrawn at retirement. Premature withdrawals may be subject to an additional 10% tax penalty. If the district offers a Roth 403(b) plan and you choose the Roth option, contributions are made on an after-tax basis instead. In this case, earnings and contributions can be withdrawn tax-free at retirement if certain requirements are met.
False: Although when 403(b) plans were initially established only annuity investments were allowed, that changed in the early 1970s. You can choose to invest in annuities or mutual funds through a 403(b)7 custodial account.
a) For 2012, the limit is $17,000. If you are age 50 or older, you may be able to contribute an additional $5,500, for a total of $22,500. Contribution limits are indexed to inflation and may increase in future years.
d) You must take into account all of the above issues when choosing investments for your 403(b) plan. Considering your financial goals, timeline and risk tolerance against the objectives and historical performance of the investments available will help you make an informed and appropriate choice. But you also need to consider the fees and expenses associated with the investment, as they can have a significant impact on the total amount of money you can accumulate over the long term.
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