What is a 403(b) Retirement Plan?

A 403(b) retirement plan:

• Is typically established by not-for-profit 501(c)(3) employers, hospitals, self-employed ministers, and public education organizations.

• Allows eligible employees to make salary reduction contributions into the plan on a pre-tax and/or after-tax (Roth) basis. 

If the contributions are pre-tax, earnings within a 403(b) plan accrue on a tax-deferred basis. If they are after-tax (Roth), earnings within a 403(b) plan accrue on a tax-free basis. Certain restrictions apply.

Role of the Employer

Employers offering a 403(b) plan may make employer matching or employer basic (non-elective) contributions to the plan on behalf of the eligible employees. 

As a general rule, the administration associated with a 403(b) plan is less involved than the administration of a 401(k) plan. 

While 401(k) retirement plans are generally subject to ERISA, 403(b) plans sponsored by church plans and governmental plans are exempt from ERISA. Such plans are commonly referred to as Non-ERISA plans.

Non-ERISA 403(b) plans do not involve employer contributions and involve voluntary plan participation only. If an employer chooses to make contributions to an employee 403(b) account, they are subject to ERISA guidelines.

403(b) Plans for Christian Ministries

Today 403(b) retirement plans provide significant benefits and advantages for ministries.

Since Christian ministries often have unique needs, it’s important to tailor the retirement plan to those needs. It’s also crucial to be aware of, and benefit from, the tax code and the Department of Labor rules.

Some Benefits of a 403(b) Retirement Plan

• Most plan sponsors are not aware of the specific 403(b)(9) church retirement plan rule that makes the minister’s voluntary contributions pre-SECA tax in addition to state and federal income tax.

• The Foreign Earned Income Exclusion IRS rule allows missionaries working abroad to qualify to exclude their earned wages from U.S. federal taxes. This amount changes annually with inflation. Use the IRS’s Interactive Tax Assistant tool to see if you are eligible for this exclusion.

• A Roth 403(b) retirement plan allows missionaries abroad to contribute to a Roth 403(b) resulting in tax-free growth and distribution. A Roth 403(b) is an outstanding savings vehicle for your employees. Are you offering both a 403(b) and a Roth 403(b) plan? This is just one example.

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Learn more about Church Retirement Plans.

Interested in learning more about 403(b) retirement plans? Contact Envoy Financial and one of our specialists would be happy to speak with you.