Is a 403(b) plan the only option for your nonprofit?

by Jovana Krajewski at VonLehman CPA & Advisory Firm

Nonprofits and 403(b) plans have traditionally gone together like peanut butter and jelly. 403(b) plans were established for the exclusive benefit of tax-exempt organizations and have long been the plan of choice for nonprofits. However, nonprofits now have other options to consider. Even if you prefer a 403(b) plan, as many nonprofits still do, it is worthwhile to review and weigh the benefits of other types of plans.

Four Types

Generally, a nonprofit has the four types of plans to choose from:

1. 403(b). The 403(b) plan is similar to a 401(k) plan. Contributions can be made on a pretax basis through paycheck deductions. They can grow tax-free until the account holder makes withdrawals. Distributions taken by participants age 59? and older typically are taxed at ordinary income rates. Alternatively, your organization may also choose to offer employees a Roth-type 403(b) plan meaning contributions are taxable, but distributions are tax-free.

Employer matching contributions can also be made to 403(b) accounts. Additionally, loans and hardship distributions may be possible if certain requirements are met.

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