Clearing the Confusion: Expert Insights to Help You Understand Your Pension Fund Accounts

Brought to you by Your Money Line

Understanding the world of retirement can quickly become confusing for even the most financially savvy. The space can feel increasingly overwhelming when so many retirement accounts look and feel similar. To help cut through the fog of the jargon and logistics, Your Money Line has compiled some of the most frequently asked questions surrounding retirement accounts offered by Pension Fund.

Q: I was told I could have a 403(b) account. I’ve never heard of that. What is that?

A: A 403(b) account is a defined contribution account. That means you deposit a specific amount of money (make “contributions”) regularly to the account from your pay. You decide how much to contribute; that’s the “defined” part. When you retire, you can then withdraw money from the account.

Q: I’ve heard of 401(k) retirement accounts, is a 403(b) essentially a “church 401(k)”?

A: Well, sort of. 401(k)s and 403(b)s are both defined contribution accounts for retirement and, for the most part, work the same way. The tax laws that govern how they work are described in two parts of the federal tax code. 401(k) is part of the IRS code that describes retirement plans for private, for-profit companies; 403(b) is in the section that describes retirement plans for church employees, non-profit organizations and government employers.

While there are a few subtle legal differences between a 401(k) and a 403(b) plan, as a practical matter, you can consider a 403(b) through Pension Fund to be similar to a 401(k) for pastors, church workers and other employees affiliated with the Stone-Campbell (Restoration) Movement. The main features — how they are taxed and how much you can contribute — are identical.

Q: How do taxes work with a 403(b) account?

A: Pension Fund offers both a pre-tax and Roth 403(b) option, so you can choose how your accounts are taxed by choosing to contribute to either or both account types. For the Tax-Deferred Retirement Account 403(b), your contributions are made from your pre-tax earnings. This means that your taxable income today is lower. You do not pay any taxes on earnings in the account, such as dividends paid, while it is in the account. When you retire and begin withdrawing money (“distributions”), any money you withdraw is taxed as income at your ordinary income tax rate.

For the Roth 403(b), your contributions come from your after-tax earnings. As with a traditional-style account, you do not pay any taxes on earnings while the money is still in the account. When you retire, all of your distributions are tax-free provided that your account has satisfied the 5-year rule.

Q: How much can I contribute to my 403(b) account?

A: Each year, there is a maximum amount that you can contribute to a 403(b) account (whether pre-tax or Roth). In 2023, you can contribute up to $22,500, and if you are age 50 or older, you can contribute an additional $7,500*. This amount applies to the sum total of TDRA 403(b) contributions, Roth 403(b) contributions + pre-tax member dues to the Pension Plan**.

Q: My employer offers Pension Fund's 403(b) and the Pension Plan. What is the difference between the TDRA 403(b)/Roth 403(b) and the Pension Plan?

A: The main difference between the TDRA 403(b)/Roth 403(b) and the Pension Plan lies in the type of benefit received at retirement. The Pension Plan offers a defined benefit (guaranteed payment for life) in retirement. The 403(b) is a defined contribution plan, meaning there is no monthly payment guarantee in retirement. If your employer offers the TDRA 403(b)/Roth 403(b) and the Pension Plan, we recommend taking advantage of both if you are able. Diversifying your retirement savings is a great way to set yourself up for success in retirement.

In conclusion, navigating the world of retirement accounts can be complex, but understanding the basics can help you make informed decisions for your financial future. We hope that the answers provided to some frequently asked questions about Pension Fund retirement accounts have shed light on these topics. Whether it's understanding the differences between a 403(b) and a 401(k), grasping the tax implications of various account types, or determining contribution limits, it's crucial to have a clear understanding of your retirement options. Remember, if your employer offers both a Pension Plan and a 403(b) account, consider taking advantage of both to diversify your retirement savings and enhance your financial security in the years to come.

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*Contribution limits are adjusted annually, and the IRS will be issuing changes to the age-based catch up in coming years.

**This only applies to members who are contributing from their own funds to Pension Plan. If your employer contributes 100% of your dues, this does not apply.