Formal 403b Plans

• A 403b Supplemental Retirement Account is a tax-sheltered annuity offered to employees of tax exempt organizations. Employees make elective contributions taken directly from paychecks, reducing annual income on a dollar for dollar basis. The maximum 2011 employee contribution is $16,500. Employees 50 and over can add another $5,500 in catch-up contributions. Employees with more than 15 years of service can increase contribution amounts based on one of three schedules with the maximum annual increase being $3,000. Employer contributions are also allowed. The total annual contribution into the 403b is $49,000 including employee and employer contributions.
  
  

IRA Plans

• An Individual Retirement Account is a consumer plan whereas the 403b is an employer plan. An IRA has a $5,000 annual contribution limit with another $500 allowed for catch-up contributions. There are two types of IRA accounts, traditional and Roth IRAs. Annual adjusted gross income phaseout ranges exist to determine contribution amounts and deduction limits. A single person not covered by an employer's plan has no phaseout ranges and can make fully deductible contributions. Married couples have ranges of $169,000 to $179,000. Those who participate in an employer's plan have additional limits on traditional IRA deductibility. The phaseout range for single filers covered by employer plans is $56,000 to $66,000 and $90,000 to $110,000 for married couples. Falling above the range means a full contribution is allowed, but no deduction is taken. Roth IRAs are not affected by employer plans. The phaseout range for married couples for a Roth is $169,000 to $179,000 and for single filers is $107,000 to $122,000. Falling above the range for Roth means no contribution is allowed; only partial contributions are allowed within the range.
  
  

Other Supplemental Accounts

• There are other employer plans working similarly to 403b plans. These include 401k and 457 Plans. Both of these employer plans have the same employee contribution limits of $16,500 with $22,000 allowed for those 50 and over. Certain 457 plans limit employer contributions, while others don't. Another type of supplemental retirement account is a deferred annuity. Deferred annuities are sold by insurance companies and have no contribution limits or income restrictions. Annuities are fixed or variable and use after tax dollars, deferring taxes on earnings until money is distributed. For those maxed on employer plans and IRAs, the annuity is another option. Supplemental annuities are known as non-qualified plans.
  
  

Changes

• Limits are adjusted on qualified supplemental retirement accounts going forward from 2011. Adjustments are based on cost of living or inflation adjustments. Legislative modifications for tax regulations also affect contribution limits. Check with a financial adviser or tax planner with any questions you have.