Embarking on part two of our 403(b) insight series, we delve into critical information regarding 403(b) plans in the video “403(b) Explained: Rules, Limits, and Roth Option.” Let’s unravel the complexities surrounding withdrawals, contribution limits, and the intriguing Roth 403(b) option.
Tax Implications and Withdrawal Rules One crucial aspect highlighted in the video is that withdrawals from 403(b) accounts are taxed as regular income at the federal level. However, the landscape varies at the state level, with potential exemptions in some states. Withdrawal restrictions are in place, emphasizing that 403(b) accounts are not ideal for emergency funds or short-term needs.
Navigating Early Withdrawals: Exceptions and Penalties Dipping into your 403(b) funds before the age of 59 1/2 incurs a 10% penalty, with some exceptions. Separation from your employer, beneficiary access in case of death, financial hardship, qualified reservist distribution, and disability are scenarios exempt from the penalty, providing flexibility in specific circumstances.
Understanding Contribution Limits for 2019 and Catch-Up Opportunities For 2019, the IRS has set contribution limits to guide your savings strategy. The elective salary deferral limit is $19,000, while the total contribution limit (including employer matching) is the lesser of $55,000 or 100% of employee compensation. Employees aged 50 and over can capitalize on catch-up contributions of up to $6,000, empowering them to boost their retirement savings.
Decoding Roth 403(b) Options The Roth 403(b) option, akin to its IRA counterpart, involves funding with after-tax dollars. While it doesn’t reduce taxable income initially, the allure lies in tax-free withdrawals during retirement. The choice between a traditional and Roth 403(b) hinges on your tax bracket. If your current bracket is higher than anticipated in retirement, a regular 403(b) might be preferable. Conversely, if you foresee a higher tax bracket during retirement, a Roth 403(b) could be the smarter choice.
Empowering Your Retirement Journey with Pathfinder At Pathfinder Retirement, our commitment to your retirement journey is unwavering. Our holistic approach, backed by cutting-edge technology and personalized service, ensures innovative solutions tailored to your unique needs. Specializing in retirement planning for federal employees, we extend our expertise to everyone preparing for retirement. Explore your personalized retirement income plans, investment advisory, Social Security benefit optimization, and seamless estate planning with us. Take our Retirement Assessment Quiz to embark on a journey toward your retirement goals. Stay tuned for more insights in part three of our 403(b) series, as we continue to demystify the world of retirement planning.