Employee Retirement Plans

By Dylan Mazeika

Non-profit business, universities, and hospitals can offer a retirement plan that allows for after-tax contributions but tax-free withdrawals. The Roth 403b Retirement Plan, first introduced in 2006, allows the non-profit sector to experience the same long-term retirement benefits of their corporate counterparts. While participants can't invest in individual stocks, Roth 403b retirement plan participants have the option of annuity and variable annuity contracts or custodial accounts that work with mutual funds.

Much like a Roth IRA, Roth 403b retirement plans allow employees in the non-profit world to invest funds from their take home pay towards their retirement. Even though this doesn't reduce their taxable income, the 403b retirement plan allows participants to take out all of their contributions and potential gains completely tax-free upon retirement.

There are several advantages to the Roth 403b retirement plans. Participants can contribute far more than the limit for personal IRA accounts. Roth 403b retirement plan contributors can invest up to $15,000 per year with a catch-up provision of an additional $5,000 if they are over 50 years of age. Also, Roth 403b participants can still maintain an existing Roth IRA or start up a new one.

For non-profit businesses that want to match employee contributions, the tax rules for Roth 403b retirement plans differ slightly. Employer contributions are still made with pretax dollars. They are stored in a separate account and taxed upon withdrawal. This allows non-profit businesses to take their allotted tax deductions. However, participants will be responsible for taxes on matched contribution.

To see the cost benefits for an employee the IRS publishes a comparison of all the Roth retirement plans vs. the traditional 401k accounts at http://www.irs.gov/Retirement-Plans/Roth-Comparison-Chart.

403B plans for non-profits only

For an updated list of available retirement plans and annual plan limits, reference our employee retirement plan chart.

If you're a non-profit firm and have severe financial constraints, offering retirement benefits can seem like just one more thing to have to squeeze into a limited budget.

In the area of pension plans, however, non-profit firms can provide a very attractive investment opportunity for employees at a very low cost. These plans, known as 403B plans, or tax-deferred annuities, allow employees of non-profit firms to invest in tax deferred plans for retirement.

The plans are actually quite similar to 401k plans, but are designed specifically for firms that are tax-exempt under Section 501(c)(3).

Most 403B plans are funded entirely through salary reductions elected by employees. These can range from nothing up to a maximum of $10,000 per year. Additional employer contributions are also permitted, although understandably, this tends to be much less common than 401k matching in the corporate world. The combined amount a participant may contribute as pre-tax elective deferrals and designated Roth contributions each taxable year is limited. Total contributions to the plan are limited to $17,500 in 2013 and 2014 plus an additional $5,500 for employees age 50 or older.

403B contributions are then invested in either annuity contracts or mutual fund investments. While no specific pension benefit is guaranteed, the tax deferred status of these investments translates to dramatically more retirement income than other forms of investing.

For the non-profit, costs are limited to the price of setting up and administering the fund. These costs can be fairly modest with a standard plan; in fact, some non-profits actually can save money after factoring in lower state or local payroll taxes. However, more complex plans can be as costly as a 401k.