In 2001, the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) made several changes to the rules for 403(b) retirement plans.
First, the EGTRRA made the maximum amount contributable (MAC) calculation much simpler by removing the maximum exclusion allowance (MEA) calculation. Now, the contribution rules are as follows:
Secondly, 403(b) plans are now eligible for rollover into 401(k) plans as long as the following apply:
There are good personal reasons to contribute to a 403(b) plan. Although employees of some qualifying organizations (religious, charitable, scientific, public-safety testing, literary, or educational organizations) may be entitled to pensions, pension proceeds usually do not equal pre-retirement income; contributions to a 403(b) plan can supplement one's pension. Moreover, 403(b) contributions are made with pre-tax dollars, and earnings accumulate without taxation until withdrawal. (Withdrawals made before the age of 59½ may be subject to a 10% federal income tax penalty.)
The changes effected by the EGTRRA make 403(b) participation more desirable than ever. If you work for a qualifying organization, ask about the plan today.