Cents and Sensibility
Cents and Sensibility
403(b) plans have
gotten an upgradeIf you work for a school, hospital, religious organization or other nonprofit group, then you may be contributing to a 403(b) plan. Your 403(b) has always been a great way to build retirement assets, now, it's gotten even better.
New tax laws have given your plan some other important new benefits, including the following:
>> Higher employee contribution limits. In 2001, you could contribute $10,500 to your 403(b) plan. But in 2002, you can put in up to $11,000; this ceiling will then increase by $1,000 per year, until it caps out at $15,000 in 2006. Starting in 2007, the $15,000 base will be indexed for inflation.
>> Higher total contribution limits. In previous years, the total 403(b) contribution limit -- which includes your contribution and that of your employer -- was based on a formula that was more restrictive than the current guidelines. Now, the total contribution to your plan is based on 100 percent of your salary, up to $40,000.
>> "Catch-up" contributions for workers 50 and older. If you're 50 or over, and you don't think you've saved enough for retirement, the new tax laws have given you a bonus. You can now put in additional money to your 403(b), above and beyond the normal contribution limits. In 2002, you can kick in an extra $1,000 to your plan; this "catch-up" contribution rises by $1,000 per year until it reaches $5,000 in 2006, after which it is indexed for inflation.
>> Ability to roll over 403(b) assets into another retirement plan. In your life, as in everyone's, circumstances may change, and you may someday decide to take another job. If you do, what happens to your 403(b)? Thanks to the new tax laws, you now have a great deal of flexibility with regard to your plan assets. Specifically, you can "roll over" your 403(b) funds into a new employer's 401(k), 403(b) or 457 plan for government employees, as long as these plans permit such rollovers. And these rollovers are tax-free. You can also move your 403(b) into a traditional IRA.
To find out more about how these and other related changes could affect your individual situation, consult with your tax advisor.
Guy Steele is a financial planner and head
of the Pali Palms office of Edward Jones. Send
planning and investing questions to him at 970
N. Kalaheo Ave., Suite C-210, Kailua, HI, 96734,
or by email at: gsteele2@pixi.com