403(b)/TSA Plans in Maryland, D.C. and Virginia
403(b)/TSA options and choices for eligible participants living in Maryland, D.C. and Virginia
What Is a 403(b) Plan?
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.
Individual accounts in a 403(b) plan can be any of the following types.
- An annuity contract, which is a contract provided through an insurance company,
- A custodial account, which is an account invested in mutual funds, or
- A retirement income account set up for church employees. Generally, retirement income accounts can invest in either annuities or mutual funds.
We use the term “403(b) account” to refer to any one of these funding arrangements throughout this publication, unless otherwise specified.
What Are the Benefits of Contributing to a 403(b) Plan?
There are three benefits to contributing to a 403(b) plan.
- The first benefit is that you do not pay income tax on allowable contributions until you begin making withdrawals from the plan, usually after you retire. Allowable contributions to a 403(b) plan are either excluded or deducted from your income. However, if your contributions are made to a Roth contribution program, this benefit does not apply. Instead, you pay income tax on the contributions to the plan but distributions from the plan (if certain requirements are met) are tax free.Note. Generally, employees must pay social security and Medicare tax on their contributions to a 403(b) plan, including those made under a salary reduction agreement. See chapter 4, Limit on Elective Deferrals , for more information.
- The second benefit is that earnings and gains on amounts in your 403(b) account are not taxed until you withdraw them. Earnings and gains on amounts in a Roth contribution program are not taxed if your withdrawals are qualified distributions. Otherwise, they are taxed when you withdraw them.
- The third benefit is that you may be eligible to take a credit for elective deferrals contributed to your 403(b) account. See chapter 10,Retirement Savings Contributions Credit (Saver’s Credit).
Excluded. If an amount is excluded from your income, it is not included in your total wages on your Form W-2. This means that you do not report the excluded amount on your tax return.
Deducted. If an amount is deducted from your income, it is included with your other wages on your Form W-2. You report this amount on your tax return, but you are allowed to subtract it when figuring the amount of income on which you must pay tax.
Who Can Participate in a 403(b) Plan?
Any eligible employee can participate in a 403(b) plan.
Eligible employees.
The following employees are eligible to participate in a 403(b) plan.
- Employees of tax-exempt organizations established under section 501(c)(3). These organizations are usually referred to as section 501(c)(3) organizations or simply 501(c)(3) organizations.
- Employees of public school systems who are involved in the day-to-day operations of a school.
- Employees of cooperative hospital service organizations.
- Civilian faculty and staff of the Uniformed Services University of the Health Sciences.
- Employees of public school systems organized by Indian tribal governments.
- Certain ministers (explained next).
Ministers.
The following ministers are eligible employees for whom a 403(b) account can be established.
- Ministers employed by section 501(c)(3) organizations.
- Self-employed ministers. A self-employed minister is treated as employed by a tax-exempt organization that is a qualified employer.
- Ministers (chaplains) who meet both of the following requirements.
- They are employed by organizations that are not section 501(c)(3) organizations.
- They function as ministers in their day-to-day professional responsibilities with their employers.
source irs.gov for more updates see here
