Publication 571 - Tax-Sheltered Annuity Plans (403(B) Plans) Page 3
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21•
Employees of cooperative hospital service
paycheck to be contributed directly into a
What Are the Benefits
organizations.
403(b) account for your benefit. Except for
Roth contributions, you do not pay income
•
of Contributing to a
Civilian faculty and staff of the Uniformed
tax on these contributions until you with-
Services University of the Health Sci-
draw them from the account. If your contri-
403(b) Plan?
ences.
butions are Roth contributions, you pay
•
taxes on your contributions but any quali-
Employees of public school systems or-
fied distributions from your Roth account
ganized by Indian tribal governments.
are tax free.
There are three benefits to contributing to a
•
Certain ministers (explained next).
403(b) plan.
2. Nonelective contributions. These are
•
employer contributions that are not made
Ministers. The following ministers are eligi-
The first benefit is that you do not pay in-
under a salary reduction agreement.
come tax on allowable contributions until
ble employees for whom a 403(b) account can
Nonelective contributions include matching
you begin making withdrawals from the
be established.
contributions, discretionary contributions,
plan, usually after you retire. Allowable con-
1. Ministers employed by section 501(c)(3)
and mandatory contributions from your
tributions to a 403(b) plan are either ex-
organizations.
employer. You do not pay income tax on
cluded or deducted from your income.
these contributions until you withdraw
However, if your contributions are made to
2. Self-employed ministers. A self-employed
them from the account.
a Roth contribution program, this benefit
minister is treated as employed by a
does not apply. Instead, you pay income
tax-exempt organization that is a qualified
3. After-tax contributions. These are contri-
tax on the contributions to the plan but dis-
employer.
butions (that are not Roth contributions)
tributions from the plan (if certain require-
you make with funds that you must include
3. Ministers (chaplains) who meet both of the
ments are met) are tax free.
in income on your tax return. A salary pay-
following requirements.
Note. Generally, employees must pay so-
ment on which income tax has been with-
cial security and Medicare tax on their con-
held is a source of these contributions. If
a. They are employed by organizations
tributions to a 403(b) plan, including those
your plan allows you to make after-tax con-
that are not section 501(c)(3) organiza-
made under a salary reduction agreement.
tributions, they are not excluded from in-
tions.
See chapter 4,
Limit on Elective
Deferrals,
come and you cannot deduct them on your
for more information.
b. They function as ministers in their
tax return.
day-to-day professional responsibilities
•
The second benefit is that earnings and
4. A combination of any of the three contri-
with their employers.
gains on amounts in your 403(b) account
bution types listed above.
are not taxed until you withdraw them.
Throughout this publication, the term chap-
Earnings and gains on amounts in a Roth
lain will be used to mean ministers described in
Self-employed minister. If you are a
contribution program are not taxed if your
the third category in the list above.
self-employed minister, you are considered both
withdrawals are qualified distributions.
an employee and an employer, and you can
Otherwise, they are taxed when you with-
Example. A minister employed as a chap-
contribute to a retirement income account for
draw them.
lain by a state-run prison and a chaplain in the
your own benefit.
•
The third benefit is that you may be eligi-
United States Armed Forces are eligible em-
ble to take a credit for elective deferrals
ployees because their employers are not section
contributed to your 403(b) account. See
501(c)(3) organizations and they are employed
chapter 10,
Retirement Savings Contribu-
Do I Report
as ministers.
tions Credit (Saver’s
Credit).
Contributions on My
Excluded. If an amount is excluded from
Who Can Set Up a
your income, it is not included in your total
Tax Return?
wages on your Form W-2. This means that you
403(b) Account?
do not report the excluded amount on your tax
Generally, you do not report contributions to
return.
your 403(b) account (except Roth contributions)
Deducted. If an amount is deducted from
You cannot set up your own 403(b) account.
on your tax return. Your employer will report
your income, it is included with your other wages
Only employers can set up 403(b) accounts. A
contributions on your 2011 Form W-2. Elective
on your Form W-2. You report this amount on
self-employed minister cannot set up a 403(b)
deferrals will be shown in box 12 and the Retire-
your tax return, but you are allowed to subtract it
account for his or her benefit. If you are a
ment plan box will be checked in box 13. If you
when figuring the amount of income on which
self-employed minister, only the organization
are a self-employed minister or chaplain, see
you must pay tax.
(denomination) with which you are associated
the discussions next.
can set up an account for your benefit.
Self-employed ministers. If you are a
self-employed minister, you must report the total
Who Can Participate in
contributions as a deduction on your tax return.
How Can Contributions
a 403(b) Plan?
Deduct your contributions on line 28 of the 2011
Form 1040.
Be Made to My 403(b)
Any eligible employee can participate in a
Account?
Chaplains. If you are a chaplain and your em-
403(b) plan.
ployer does not exclude contributions made to
your 403(b) account from your earned income,
Generally, only your employer can make contri-
Eligible employees. The following employ-
you may be able to take a deduction for those
butions to your 403(b) account. However, some
ees are eligible to participate in a 403(b) plan.
contributions on your tax return.
plans will allow you to make after-tax contribu-
•
Employees of tax-exempt organizations
However, if your employer has agreed to
tions (defined below).
established under section 501(c)(3).
exclude the contributions from your earned in-
The following types of contributions can be
These organizations are usually referred
come, you will not be allowed a deduction on
made to 403(b) accounts.
to as section 501(c)(3) organizations or
your tax return.
simply 501(c)(3) organizations.
1. Elective deferrals. These are contribu-
If you can take a deduction, include your
•
tions made under a salary reduction agree-
Employees of public school systems who
contributions on line 36 of the 2011 Form 1040.
ment. This agreement allows your
are involved in the day-to-day operations
Enter the amount of your deduction and write
of a school.
employer to withhold money from your
“403(b)” on the dotted line next to line 36.
Chapter 1 403(b) Plan Basics
Page 3
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