Site Search:

A browser that supports JavaScript is required to submit the NOVA site search form and to display search results.

Audience Navigation:

Topic Navigation:

Breadcrumb Navigation:

Home > Faculty & Staff > Human Resources > Benefits > Savings for Retirement > 403(b) and 457 Information > 403(b) and 457 Frequently Asked Questions

403(b) FAQ

  1. What is a Tax Deferred Annuity (TDA) 403(b) Plan?
  2. Why is it called Tax Deferred ?
  3. Who is eligible to participate in the 403(b) Plan?
  4. How do I enroll in the TDA Plan?
  5. How are the taxes affected by 403(b) Plan?
  6. What are the advantages of a TDA Program?
  7. How will it change the way my W-2 looks?
  8. What are the highlights of the program?
  9. What is the minimum deferral amount?
  10. How much can I contribute to a TDA Plan?
  11. Can I stop my contribution and resume at a later date?
  12. May I change my deferral amount?
  13. Can I borrow from my account?
  14. What are my investment options?
  15. How will I know how much is in my TDA Account?
  16. What happens if I terminate employment?
  17. What are my options at retirement?
  18. What happens to my TDA if I should die before I retire?
  19. What are surrender charges?

What is a Tax Deferred Annuity (TDA) 403(b) Plan?

TDA stands for Tax Deferred Annuity and is governed by the section of the Internal Revenue Code (IRC) 403(b), commonly referred to as a 403(b) plan. Employees of non profit 501(c) tax exempt organizations, higher education institutions, and public schools are eligible to tax defer income under this plan for additional retirement savings. Tax Sheltered Annuity, TSA, is the technical IRC term.

Why is it called Tax Deferred?

Your voluntary contributions to a TDA reduce your taxable income (wages) for both state and federal taxes. Contributions must be made through your employer. TDA contributions, however, do not affect Social Security taxes or reported wages for Social Security. The liability for taxes on the deferred amount and any interest accrued is postponed until the money is taken into income, which is usually at time of retirement. Do not confuse this with tax exempt deductions.

Who is eligible to participate in the 403(b) Plan?

IRC non-discrimination rules state that an employer offering a TSA plan to a group of employees must offer this program to all employees with some exceptions. NOVA offers participation to all employees, with the exception of those under the work study program and student hires. Adjunct faculty and wage employees are eligible to participate.

What are the advantages of a TDA Program?

Participation in a TDA program will immediately reduce your taxes. All monies contributed to your TDA are not subject to ordinary income tax until you elect to take them as income. Therefore, by participating in the plan, you will generally pay less federal and state income tax. The example shown in the following table shows this potential savings . The table assumes a single employee with one withholding exemption.

How are the taxes affected by 403(b) Plan?

Power of Tax Deferral
Without TDA With TDA
Gross Semi-Monthly Income $1,500.00 $1,500.00
Pretax Contribution None $150 TDA
Federal Withholding Tax $249.82 $207.82
Combined OASDI & HI (FICA) $114.75 $114.75
State Income Tax (SIT) $67.61 $58.99
Take Home Pay $1,067.82 $968.44

RESULT: You contributed $150, but your take-home pay is only reduced by $105 because of lower federal, state, and local income taxes.

What are the highlights of the program?

  • Contributions from your salary are made on a pre-tax basis and accumulate on a tax deferred basis.
  • Immediate 100% vesting is available on all your contributions.
  • Loan provisions enable you to borrow against your account balance.
  • You have a wide choice of investment options.

How will it change the way my W-2 looks?

At the end of the calendar year, your W-2 will show your adjusted wages for tax reporting purposes. A separate box on the W-2 will show the total calendar year deferral amount, coded appropriately as 403(b) money.

NOTE: You have had the benefit of lower taxes up front all year long because each time you were paid the taxes were computed on the salary rate minus the amount of the TDA.

How much can I contribute to a TDA Plan?

There specific limitations on the amount of money you may set aside in a calendar year. The limitations that were imposed by IRC sections 403(b), 403(b)7, 415 and 402(g) have been changed. For the year 2005, employees can contribute up to $14,000 per calendar year. To learn more details about the amount of money you can put away each year and years thereafter, click here or call your carrier.

Also, you no longer have to get a Maximum Exclusion Allowance (MEA) or Maximum Contribution Amount (MCA) from your 403(b) vendor.

Under section 402(g) of the Code, employees with 15 years of service with the same employer, limited by the general limit cap, may be eligible to exceed the new limit if they meet certain guidelines.

What is the minimum deferral amount?

The College requires a minimum deferral amount of $200 in a calendar year.

May I change my deferral amount?

Once you decide to participate and agree to the amount of deferral for each pay period, a change in the deferral amount may be thereafter made monthly provided your annual deferral stays within your maximum deferral limits. You must complete a new Salary Reduction Agreement each time you want to make a change. The NOVA payroll accommodates percents for Adjunct faculty only, therefore, all other employees' deferral amounts must be stated in dollars.

Can I stop my contribution and resume at a later date?

Yes. Elective contributions may be suspended at any time. Your contributions already on deposit will continue to participate in the appropriate fund(s) experience based on carrier supplied allocations you have made. Allocations can be changed at any time by phone using your PIN or in writing.

What are my investment options?

You may direct your contributions into any one or combination of the investment options offered by your chosen carrier. Investment options include both fixed accounts and variable accounts, with a wide range of investment options. Your carrier representative is available to discuss your options and to provide additional information about allocating contributions, transferring between funds, carrier charges, and other questions you may have. Do not overlook the importance of asking specific questions regarding fees, surrender charges, and other costs to you. Remember, there are no dumb questions!

What are surrender charges?

Your carrier may impose surrender charges when a withdrawal is requested. This is an area where the carriers differ. Participants should ask pertinent questions of the carrier regarding all administrative fees including transfer and surrender fees before enrolling.

Can I borrow from my account?

You may borrow money from your TDA account under certain circumstances without having to pay income tax or IRS penalties. The loan must be paid back according to the loan schedule arranged by your carrier. Your carrier representative can provide further information.

How will I know how much is in my TDA account?

Your carrier will provide you with Quarterly Account statements that will show:
- All transactions, including deposits and withdrawals
- Account summary
- Interest accrued (interest is deferred from taxes as well)
- Applicable expense charges
- Current interest rates
- Variable units purchased and the applicable unit value

Am I restricted in accessing my TDA account?

Yes. Monies contributed to a TDA account are intended for additional retirement income; therefore, the availability of these funds prior to retirement is restricted. Federal legislation in the Tax Reform Act of 1986 restricts withdrawals of monies contributed after January 1989 unless one of the following events occurs:
- employee is over age 59 1/2
- separation from service
- death
- financial disability hardship
- qualified domestic relation orders (ODRO)

Withdrawals of Pre-1989 contributions remain subject to provisions of the law in effect prior to January, 1989, with possible carrier limitation and/or surrender charges. Monies withdrawn may be subject to a 10% IRS penalty unless certain conditions are met. The conditions are:
1. Attainment of age 59 ½
2. Death
3. Disability
4. Participant receives substantially equal periodic payments for life after separation from service
5. Attainment of age 55 (or more) where separating from service
6. Qualified domestic relation orders

What happens if I terminate employment?

1. You may withdraw your cash subject to IRS regulations.
2. You may leave the money to accumulate for future use.
3. You may transfer your account balance if your new employer has a tax deferred annuity plan and the new plan accepts transfers.
4. You may roll your money over to an IRA rollover account.

What are my options at retirement?

1. You may choose to leave your money in your account and your funds will continue to participate in the investment earnings on a tax deferred basis until you elect to withdraw them. At age 70-1/2, the IRS generally requires that you begin to withdraw a portion of the balance.
2. You may convert your account balance to provide periodic or annual income under a variety of options.
3. You may rollover your account balance to an IRA.

What happens to my TDA if I should die before I retire?

Your account balance (valuation as the date of distribution) is paid to your beneficiary. Make sure to keep your beneficiaries current.

How do I enroll in the TDA Plan?

The enrollment process starts with contacting one or more carriers from the list of authorized payroll deducted vendors as provided by FBMC. Then, once you select a vendor, determine how much you want to defer each pay period. This figure is placed on a Salary Reduction Agreement form. This form becomes the payroll authorization for 403(b) deductions. You must sign this form. The amount of the annual reduction amount is divided by the number of times paid to determine each pay period's amount (18 or 24 for 9 month faculty, 24 for 12 month faculty and classified, individual specific for wage and adjunct faculty). TDA deductions are not taken from summer faculty payrolls.

The monies are usually sent by a third party, FBMC, to the carriers within three days of the paycheck date. They are then allocated according to the investment options selected and listed on the form you completed with your chosen carrier. Allocations can be changed at any time using the instructions provided you from the carrier.