Don?t overlook 403(b) plan when readying for retirement

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401(k)s attract a lot of attention these days, but they may not be an option if you are employed by charitable or educational organizations. While not as recognized, 403(b) plans offer the same retirement benefits as 401(k) plans. Here are answers to some commonly asked questions about 403(b) plans:|ret||ret||tab|

What is a 403(b) plan? |ret||ret||tab|

A 403(b) plan is a tax-deferred retirement savings program that can be offered only to qualifying nonprofit organizations. These types of organizations include school systems, educational institutions, charitable institutions, museums and universities. With this plan, you contribute pre-tax funds into a retirement account that may or may not include employer contributions,|ret||ret||tab|

What is the maximum I can contribute to a 403(b) plan? |ret||ret||tab|

The maximum you can contribute is the lesser of 20 percent of your net compensation or $10,500. This limit is subject to additional limitations check with your financial consultant for details on your plan. In 2002, the limit will be the lesser of 100 percent of net compensation or $11,000.|ret||ret||tab|

What type of investments can I have in my 403(b) plan? |ret||ret||tab|

This type of plan is limited to a few investment options specified by the Internal Revenue Code. For most types of 403(b) plans, three types of investments may be used annuity contracts, mutual fund custodial accounts and life insurance contracts.|ret||ret||tab|

When can distributions be made from 403(b) plans? |ret||ret||tab|

Individuals may take distributions after reaching age 59 1/2, because of death or disability, following a separation from service or for financial hardship.|ret||ret||tab|

When must distribution from 403(b)s begin? |ret||ret||tab|

Mandatory distributions from your 403(b) plan begin once you reach age 70 1/2 unless the employee is still working and has earned income.|ret||ret||tab|

How are distributions taxed? |ret||ret||tab|

All distributions from your 403(b) plan are taxed as ordinary income. A 10 percent penalty is applied to any premature withdrawals that don't meet the rules, just like other retirement plans.|ret||ret||tab|

When can a 403(b) distribution be rolled over into an IRA? |ret||ret||tab|

A total distribution can be rolled to an IRA if you separate from service, become disabled, reach age 59 1/2 or die. You may also roll the money over to other 403(b) plans. Beginning in 2002, funds from a 403(b) plan will be able to be rolled over into any kind of retirement plan including a 401 (k).|ret||ret||tab|

What are the options for a 403(b) beneficiary at death? |ret||ret||tab|

403(b) plans are subject to the same distribution rules that apply to IRAs and other retirement plans such as 401 (k)s. The available options depend on whether the beneficiary is a surviving spouse and whether the mandatory distributions have already started. Only a surviving spouse has the right to roll over the assets into an IRA.|ret||ret||tab|

What if I work at an organization that does not have a 403(b) plan? |ret||ret||tab|

Nonprofit organizations can typically establish any retirement plan available to any business. You also can open your own IRA and fund through automatic deductions from your bank account.|ret||ret||tab|

(The preceding article was provided by Timothy M. Reese, vice president of investments with A.G. Edwards & Sons, member SIPC.)[[In-content Ad]]