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Nov. 26, 2013

Gideon Bulldog     Gideon School District     Gideon Bulldog
 403(b) and 403(b)(7) Plans  

What is a 403(b) Plan?

A 403(b) is a tax-advantaged retirement program for employees of educational institutions, and certain other not-for-profit organizations.  A 403(b)(7) is a subsection that allows investment in mutual  funds through a custodial account.  Where used in this information, 403(b) refers to both 403(b) and 403(b)(7) as appropriate.  403(b) plans provide an outstanding means to maximize retirement savings.  All employees of the Gideon School District are eligible to participate in a 403(b) plan through payroll deduction.  To minimize administrative and payroll costs, the district maintains a list of approved vendors for 403(b) plans and employees have the option of selecting from plans offered by these vendors.

These plans allow employees to reduce current taxable income while setting aside funds to supplement retirement benefits.  Taxes on investment earnings are also deferred, allowing for long-term investment growth.  Withdrawals are taxed as ordinary income, but many retirees find themselves in a lower tax bracket than when they were working.  (A 10% penalty may apply for early withdrawal.)

Of the many IRS rules and regulations governing 403(b) plans, there are a few fundamental principles:

As part of a comprehensive revision of the laws covering ERISA retirement plans, 403(b)(7)s were created to expand the original 403(b) concept.  A 403(b)(7) plan allows employees to make contributions to custodial accounts invested in mutual funds, yet the investment is treated the same as if it had been made to an annuity contract.  As a result, if an employee makes 403(b)(7) contributions, they may exclude them from their gross income for federal (and most state) tax purposes.  Section 403(b)(7) also makes an exception to the 403(b) rule that requires contributions be made to annuity purchased from an insurance company.  But the exception applies only when the mutual fund investments are held in qualifying custodial accounts.

How Can I Participate in the Gideon School District 403(b) Plan?

The Gideon School District 403(b) plan currently has two approved vendors through which employees can participate in 403(b)/403(b)(7) tax deferred investment options.  As of the April 10, 2009, currently approved vendors include:

These are considered to be "low cost" vendors where your retirement savings will most likely be maximized.  The products sold by these vendors are not federally insured and can go down in value, but generally, over time, they are good investments. ING offers a "fee for service" plan through a series of brokers that has additional fees but may be appropriate for individuals who would like more guidance.  Our Vanguard plan has a direct relationship with Vanguard and is most appropriate for individuals who are comfortable being self-directed investors.  It is important to keep the number of vendors small, although new vendors will be considered if there is justification that their plans are better and/or their costs are lower.  New vendors will be considered at the request of a group of five or more employees who intend to fund a 403(b) through the new vendor via payroll deduction and who provide cost saving justification for the addition of that vendor.

To participate in the district 403(b) plan you must establish an account with one of the approved vendors and then fill out a salary reduction request contract with the central office.

Annual Contribution Limits

The IRS imposes contribution limits for employees participating in a 403(b) plan.  These are total contribution limits for all 403(b) plans an employee may participate in.  The chart below details the annual contribution limits.

403(b) Retirement Plan Annual Contribution Limits

(Authorized by the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001)

403(b) Plan Dollar and Percentage Limits







Limit on employee contributions





*Indexed to COLA -- To be set Oct. 2013

"Catch-Up" contributions for participants 50 or over





* Limits subject to annual review by IRS

Note: * = Limits subject to annual review by the IRS.

The 15-Year Rule catch-up provision applies only to the 403(b) Retirement Plan. Based on contribution history beginning in 1987, the 15-year rule may allow any employee to exceed the annual limit if they have at least 15 years of service. Additional contributions made under the 15-year rule cannot exceed $3,000 per year, up to a $15,000 lifetime cap.

As indicated in the chart above, here are certain catch-up limits that allow contributions above the established limitations.  You may want to consult a tax advisor to seek additional guidance if you plan on taking advantage of any of these catch-up provisions.

Ineligibility Issues

You are ineligible to participate in the 403(b) plan if you are a participant in an eligible deferred compensation plan [457 or 401(k)] or a participant in another TSA.

IRS Web Site

The Internal Revenue Service maintains a Retirement Plans FAQs regarding Tax-Sheltered Annuities where you can find out additional information.

If you have questions about the 403(b) plan available through the Gideon School District you can contact the central office.

NOTE: The information on this page is considered to be informational in nature.  It describes the general design of the 403(b) plan available through the Gideon School District and conveys our current understanding of the basic requirements and limitations.  Government regulations and the interpretation of government regulations may change from time to time.  It is the responsibility of the contributor to verify their qualifications for participation in a 403(b) plan.  We are currently in the process of verifying 403(b) compliance under new IRS guidelines.  Hence information contained in this document is subject to change.  New information will be posted when the 403(b) compliance process check is complete.