403B plans for non-profits only

A quick look at how 403B plans work and how they can benefit your non-profit.

If you're a non-profit firm and have severe financial constraints, offering retirement benefits scan 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 401kB 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 401kB plans are funded entirely through salary reductions elected by employees. These can range from nothing up to a maximum of $15,000 per year. Additional employer contributions are also permitted, although understandably, this tends to be much less common than 401k matching in the corporate world.

401kB 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.

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