HawaiiDOE403b

TSA/403(b) Information Center

General Information (Underlined words are defined in the Glossary of Terms)

403(b) Basics

A 403(b) plan, also known as a Tax-Sheltered Annuity (TSA) plan, is a retirement plan for employees of certain tax-exempt organizations such as the DOE. Individual accounts in a 403(b) plan can be one of the following types:

1. Annuity contract, which is a contract provided through an insurance company

2. A custodial account, which is an account invested in mutual funds (please note that the State of

Hawaii DOE 403(b) program does not permit custodial accounts at this time).

Benefits

There are three benefits to contributing to a 403(b) plan:

1. You do not pay tax on allowable contributions in the year they are made. You do pay tax on allowable contributions until you begin making withdrawals form the plan, usually after you retire. Allowable contributions to a 403(b) plan are either excluded or deducted from your income.

2. Earnings and gains on amounts in your 403(b) account are not taxed until you withdraw them.

3. If you make eligible contributions to a retirement plan, you may be able to receive a tax credit which could reduce the federal income tax you pay. (Please refer to IRS Publication 571 on the IRS Publications page for additional details.)

Contributions

Only your employer can make contributions to your 403(b) account. These contributions are made under a salary reduction agreement. This agreement allows your employer to withhold money from your paycheck to be contributed directly into a 403(b) account for your benefit.

Tax Reporting

Generally, you do not report contributions to your 403(b) plan account on your tax return. Your employer will report contributions on your Form W-2.

Maximum Allowable Contribution

Your limit on the amount you can contribute to your 403(b) plan for any year is referred to as your Maximum Allowable Contribution (MAC). Your limit may vary from year-to-year based on changes made by the IRS and changes to your personal circumstances. We encourage you to complete MAC Worksheet every year to ensure you do not exceed your annual contribution limitation (found on the Forms page). You must complete and submit a MAC Worksheet for any calendar year in which you will utilize a "catch-up" contribution described below.

In 2007, the base contribution limit is $15,500. You may be able to contribute more if you qualify for one of several catch-up’s (see below). If you qualify for the full amount of both catch-up's, you may be able to contribute up to $23,500 in 2007.

If you will have attained age 50 by 12/31/2007, you will be able to contribute $5,000 more to a TSA than the 2007 base limitation of $15,500. Also, if you have completed at least 15 years of service with the DOE and your lifetime 403(b) contributions have averaged less than $5,000 per year, you may be eligible to contribute an additional $3,000 in 2007.

If you exceed your annual contribution limit, taxes and additional IRS penalties may apply. Be sure you know and remain below your limit.

Distributions, Rollovers, and Exchanges

Generally, a distribution from a 403(b) account may not happen until you meet a distributable event. Distributable events include:

Attainment of age 59 1/2

Termination of employment with the DOE

Becoming disabled

Financial hardship

Death

In most cases, the payments you receive or that are made available to you are taxable in full as ordinary income. After you attain age 70 1/2, you may be required to take a minimum distribution from your 403(b) plan account each year.

You can generally rollover tax free all, or any part, of a distribution from a 403(b) plan to a traditional IRA or an eligible retirement plan. (Distributions made due to financial hardship are not rollover eligible.)

You may be able to exchange all or part of your interest from a 403(b) account to another 403(b) account tax free and without having met a distributable event. The receiving 403(b) account must be subject to the same or stricter distribution restrictions. You may also be eligible to transfer money from your 403(b) plan account to a defined benefit governmental plan. Consult your agent or Investment Provider regarding the availability of transfers or exchanges.

Always consult with your agent or Investment Provider to understand the tax consequences and account specific fees associated with a distribution, rollover, or exchange.

In the past, transactions such as distributions, rollovers, hardship withdrawals, loans, and exchanges were generally accomplished through your investment provider without any DOE involvement. However, the IRS' new 403(b) regulations now require the DOE and your investment provider to share certain information and to coordinate when performing these transactions. A transaction authorization process will be utilized in order to facilitate necessary coordination and information sharing. If you wish to perform a distribution, rollover, hardship withdrawal, loans, or exchange; your investment provider must receive authorization from the DOE's third party administrator, National Benefit Services (NBS). Authorization is obtained through submission of an Authorization Form (available on the Forms page). Please note that in addition to the Authorization Form, your investment provider will likely still require submission of its own paperwork. Contact your investment provider for additional information.

Recent Plan Changes - New Final IRS 403(b) Regulations

Please select the New 403(b) Regulations link to learn more about the new 403(b) Regulations released in July, 2007.