A 403(b) plan is a special tax-deferred retirement savings plan that is often referred to as a tax-sheltered annuity, a tax-deferred annuity, or a 403(b) annuity. It is similar to a 401(k), but only the employees of public school systems and 501(c)(3) organizations are eligible to participate in 403(b) plans.
Employees can fund their accounts with pre-tax contributions, and employers can also make contributions to employee accounts. Employer contributions can be fixed or discretionary. Eligible employees may elect to defer up to 100% of their salaries, as long as the amount does not exceed $16,500 (in 2011). A special “catch-up” contribution provision enables those who are 50 and older to save an additional $5,500. Total combined employer and employee contributions cannot exceed $49,000 (in 2011). Contribution limits are indexed annually for inflation.
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