non profit organization retirement plans

An official website of the United States Government

• Kreyòl ayisyen
• Search Toggle search Search Include Historical Content - Any - No Include Historical Content - Any - No Search
• Menu Toggle menu
• INFORMATION FOR…
• Individuals
• Business & Self Employed
• Charities and Nonprofits
• International Taxpayers
• Federal State and Local Governments
• Indian Tribal Governments
• Tax Exempt Bonds
• FILING FOR INDIVIDUALS
• How to File
• When to File
• Where to File
• Update Your Information
• Get Your Tax Record
• Apply for an Employer ID Number (EIN)
• Check Your Amended Return Status
• Get an Identity Protection PIN (IP PIN)
• File Your Taxes for Free
• Bank Account (Direct Pay)
• Payment Plan (Installment Agreement)
• Electronic Federal Tax Payment System (EFTPS)
• Your Online Account
• Tax Withholding Estimator
• Estimated Taxes
• Where's My Refund
• What to Expect
• Direct Deposit
• Reduced Refunds
• Amend Return

Credits & Deductions

• INFORMATION FOR...
• Businesses & Self-Employed
• Earned Income Credit (EITC)
• Child Tax Credit
• Clean Energy and Vehicle Credits
• Standard Deduction
• Retirement Plans

Forms & Instructions

• POPULAR FORMS & INSTRUCTIONS
• Form 1040 Instructions
• Form 4506-T
• POPULAR FOR TAX PROS
• Form 1040-X
• Circular 230

Retirement Plan Information for Tax-Exempt Organizations

More in file.

• Businesses and self-employed
• Exempt organization types
• Lifecycle of an exempt organization
• Annual filing and forms
• Charitable contributions
• Search for charities
• Education sessions
• International taxpayers
• Governmental liaisons
• Federal, state and local governments
• Indian tribal governments
• Tax exempt bonds

By starting a retirement savings plan, an organization will help its employees save for the future. Retirement plans may also help an organization attract and retain better qualified employees. For more information, including a helpful chart comparing the features of available plans, see IRS Publication 4484, Choose a retirement plan PDF  for employees of tax exempt and government entities .

The IRS provides the following additional resources for tax-exempt organizations interested in establishing retirement plans for employees:

• Publication 4483, 403(b) Tax-Sheltered Annuity for Sponsor PDF
• Publication 4482, 403(b) Tax-Sheltered Annuity for Participant PDF
• Publication 571, Tax-Sheltered Annuity Plans (403(b) Plans) for Employees of Public Schools and Certain Tax-Exempt Organizations PDF
• IRC 403(b) Tax-Sheltered Annuity Plans
• IRC 457(b) Deferred Compensation Plans
• Publication 4546, 403(b) Plan Checklist PDF
• Online training for employers and employees about 403(b) plans at StayExempt.IRS.gov
• See the IRS Retirement Plans home page for contribution limits, withdrawal rules, and more

Return to Life Cycle of a Public Charity

Return to Life Cycle of a Private Foundation

Return to Life Cycle of a Social Welfare Organization

Return to Life Cycle of a Labor Organization

Return to Life Cycle of an Agricultural or Horticultural Organization

Return to Life Cycle of a Business League (Trade Association)

•  Facebook
•  Twitter
•  Linkedin

What Retirement Plans can Nonprofits Use?

Nonprofit organizations can offer intrinsic benefits to employees, and they can also provide traditional benefits like retirement plans. Employees will eventually stop working someday, and a workplace retirement plan is one of the most powerful tools for building significant retirement savings. What’s more, those plans may provide tax advantages that staff members can’t find outside of the workplace.

So, which types of retirement plans work best for nonprofit organizations?

Retirement Plans for Nonprofits

Nonprofit organizations typically use 403(b) plans, 401(k) plans, SIMPLE IRA plans, and other retirement plans for employees. Traditionally, 403(b) plans were a default option for nonprofits, but 401(k) plans are a viable option for some organizations, and SIMPLE plans may make sense when employers want a basic plan with minimal costs.

Other plans are available (including DB, nonqualified plans, and more) and the rules for those plans can quickly get complicated. For most private organizations that simply want to help employees save for retirement, a 401(k), 403(b), or SIMPLE plan may be a good start. Governmental bodies and religious organizations can find 403(b) plans more useful—and some private nonprofits may choose 403(b) over 401(k) as well .

We’ll cover some unique features of 403(b)plans at the end of this article.

401(k) Plans vs. 403(b) Plans for Nonprofits

Continue reading below, or get this information by video:

Nonprofit organizations primarily used 403(b) plans in the past, and many still use those plans. But the rules have changed over time, and private nonprofits may choose 401(k) plans for the following reasons:

• Regulations now require many 403(b) plans to function more or less like 401(k) plans (maintaining a written plan document, for example).
• There are more 401(k) providers to choose from, so 401(k) plans have more options and more competition to keep pricing competitive .
• Some tax-exempt organizations, like 501(c)(6) business leagues , are not eligible to use 403(b) plans.

Significant contribution limits: Both 401(k) plans and 403(b) plans allow employees to save substantial amounts:

• Employees can defer up to $20,500 of their pay for 2022.
• Total contributions to an individual’s account, including employee salary deferral, employer matching, and profit-sharing contributions, can be as high as $61,000.
• Catch-up contributions allow those over age 50 to contribute an additional $6,500.

Note: 403(b) plans may offer an additional catch-up contribution, described below.

Roth and pre-tax options: Both 401(k) plans and 403(b) plans allow after-tax Roth contributions, assuming the employer chooses to include that feature. Employees can generally save Roth money in the plan, even if they’re disqualified from making Roth IRA contributions.

Loans and Hardship withdrawals: Both types of plans may allow employees to access their savings in the retirement plan under certain conditions. However, the employer must choose to offer those options (some employers offer one or the other, and some employers don’t allow loans or hardships).

• Loans: If allowed, employees can typically borrow up to $50,000 or 50 percent of their vested account balance (whichever is less).
• Hardship withdrawals: If allowed, employees may be able to take a distribution from the plan, which may be subject to taxes and penalties. Employees generally need to qualify for a hardship withdrawal by showing that they need the funds.

While 403(b) and 401(k) plans are similar, that doesn’t mean they’re equivalent for all tax-exempt organizations. Scroll down for details on what makes 403(b) plans unique.

SIMPLE IRA Plans

A SIMPLE plan may be a less-expensive option. For a basic retirement account that allows employees to save meaningful amounts each year, a SIMPLE is typically sufficient.

No administration costs: Unlike 401(k) plans and many 403(b) plans, SIMPLEs do not require employers to pay annual administration or other costs typical of larger retirement plans.

Meaningful contribution limits: Employees can save up to $14,000 in a SIMPLE IRA during 2022. Those over age 50 can make an additional $3,000 catch-up contribution.

Easier to administer: SIMPLEs are somewhat rigid, and that makes them inexpensive and (usually) easy to work with. There’s no discrimination testing, but there are a few potential drawbacks to be aware of:

• No Roth: SIMPLEs only allow for pre-tax contributions. If employees want to make after-tax savings, they may need to do so in a Roth IRA (if allowed).
• No loans: Employees cannot borrow against their assets through the SIMPLE plan. This may make them hesitant to participate or cause tax issues if they take distributions.
• Immediate vesting: Employees can withdraw funds from their SIMPLE account at any time. Once money hits the account (even if it’s employer money), the money is theirs to take when they want it. That may not be ideal if employees lack discipline or if the organization wants to incentivize long-term employment.
• Early-withdrawal penalty: Taking distributions from a retirement account may result in income taxes, additional tax penalties, and other complications. With SIMPLE plans, the early withdrawal penalty is 25% (as opposed to 10% for traditional IRAs).
• No other plan: SIMPLE plans may limit your ability to start other types of retirement plans during the same year.

Employer cost: The “costs” to employers are primarily the required employer contribution and the administrative tasks of running the plan. Employers must choose between :

• 3 percent of pay: Employees receive 3 percent of their earnings each year.
• 2 percent match: Employees receive a 100 percent match on their contributions, up to 2 percent of their pay.

In limited cases, the organization can reduce that contribution.

For most nonprofits, a SIMPLE is one of the least expensive and easiest-to-manage retirement plans. If you decide that you’re outgrowing a SIMPLE, you can always switch to a 401(k) or 403(b) (or another plan) down the road.

Payroll Deduction IRA

Payroll deduction IRAs are even less expensive and less restrictive than SIMPLEs. The organization does not make any contribution to employer accounts, so the cost is simply the administrative time it takes to help employees save money.

With a payroll deduction IRA, employees establish an individual retirement account (IRA), and the employer makes contributions for employees. Your employees could just open an IRA on their own, but many people don’t take action, and making things easier is sometimes all it takes to encourage healthy financial behavior.

Roth and traditional (maybe): Employees can choose to contribute on a pre-tax or after-tax basis. However, employees need to be eligible to use certain tax features (like Roth, or taking a deduction for contributions), and several factors in their financial lives can cause complications. Unlike a 401(k) or 403(b) plan, which allows everybody to contribute regardless of their income or other details, IRAs can be limited. Employees should verify their ability to make contributions with their tax advisor, as well as review IRS rules:

• Roth contribution rules
• Deductible contribution rules

If employees don’t qualify for deductible contributions or Roth contributions, they may still be able to make after-tax contributions. From there, they may choose to convert to Roth or take other actions.

Not automated: Employees need to verify their eligibility to contribute, and they need to complete any required tax reporting on their own. The W-2 will not show a reduced number for contributions to their account—employees are responsible for claiming deductions, among other things.

No employer discrimination testing or annual reporting: Because everybody uses their own IRA (and the “I” refers to “individual”), employers are not responsible for annual reporting on the program, and there’s no discrimination testing.

Immediate vesting: Since all money in a payroll deduction IRA is from the employee’s earnings, the funds are 100% immediately vested . Employees can take withdrawals or transfer funds at any time, but they may face taxes and penalties.

Other Types of Plans

For organizations with significant cash flows or highly compensated employees, defined benefit (DB) and nonqualified deferred-compensation (NQDC) plans may also be a good fit. The rules for those plans are different, and they naturally have pros and cons, but those plans are beyond the scope of this discussion. Staff may also have the opportunity to save retirement money in an HSA , but that’s related to the healthcare plan (if any).

What Makes 403(b) Plans Unique for Nonprofits

Although 401(k) plans have gained popularity for nonprofits, 403(b) plans offer several features that 401(k) plans cannot provide.

Reduced discrimination testing: Administering a 403(b) plan can be easier in some cases, especially if the organization doesn’t plan to make employer contributions (like matching or “profit-sharing” contributions). There’s no requirement to complete a top-heavy test or contribution (if your plan meets the criteria), and other requirements might be lighter. Those features may make it easier for highly-compensated employees to make significant contributions when other rank-and-file employees choose not to participate.

Additional catch-up: If your plan permits, employees might be able to make additional catch-up contributions of up to $3,000 per year. But the organization and any employee taking that route both need to meet several criteria . The employee must have 15 years of service with the same employer, and the organization must be the right type of organization. That option might not be available unless you are a:

• Public school system
• Home health service agency
• Health and welfare service agency
• Convention or association of churches (or associated organization)

Non-ERISA plans: Some 403(b) plans can operate without meeting requirements of ERISA. That includes many governmental and school 403(b) plans. Non-ERISA status reduces the administrative complexity of running the plan and may eliminate the need to file a Form 5500 each year. Private nonprofits can also qualify for non-ERISA status if they don’t have any employer contributions and have “limited involvement” in the retirement plan. In practice, most private nonprofits don’t meet the criteria. Also, while a non-ERISA plan isn’t subject to as many fiduciary obligations, that’s not necessarily a good thing.

Universal availability: 403(b) plans are typically available to all employees of the organization, with immediate entry into the plan. Some 401(k) plans limit enrollment to those who are at least 21 years old and who have worked for at least one year (as defined by plan rules). That said, 401(k) plans are allowed to use less-restrictive criteria. 403(b) plans can exclude some categories of workers, like part-time employees, but you need to mind the details.

Other differences: 403(b) plans have several other features that apply to specific organizations. For example, a minister housing allowance can be attractive for certain religious organizations. Also, post-severance contributions may allow for contributions to a former employee’s account.

Important Information

This article provides an overview of retirement plans to help you start the discussion within your organization. But it’s critical that you verify all information with a CPA or qualified tax preparer before making decisions. The author of this article is neither of those, and does not provide tax advice. What’s more, the article is written with no knowledge of your individual circumstances or other details that may be important. As a result, do not rely solely on what you find in these materials.

Go beyond a basic 401(k)

Give your employees more than just a 401(k), join the movement.

2023 Nonprofit Retirement Guide: 403(b) plans vs. 401(k) plans

Key takeaways: 

• Tax-exempt, nonprofit organizations can offer a 401(k), a 403(b), or both.
• Recent regulatory changes are making nonprofit 401(k)s even more popular among many tax exempt organizations.
• 401(k) plans are often significantly cheaper for both employers and employees
• 401(k) plans provide greater flexibility with eligibility and features designed to drive high participation rates.

403(b) Overview

403(b)’s, also known as Tax-Sheltered Annuity (TSA) plans, are exclusively available to certain tax-exempt organizations (e.g., 501(c)(3)’s, schools, etc.) while 401(k)s can be used by any employer (private companies or nonprofits).  While 403(b) plans were once the go-to option for non-profits, high 403(b) fees, limited 403(b) eligibility options and their dwindling administrative edge has led many nonprofits to switch to 401(k)s. The 2022 Secure Act 2.0 may accelerate this trend away from 403(b)’s as the best retirement plan for many nonprofits.  

In this post we will discuss how new legislation is changing the comparisons of retirement plan options for nonprofits.  We’ll compare the differences between 403(b)s and 401(k)s, covering the: 

• Types of 403(b) plans
• Administrative duties of 403(b)s vs. 401(k)s
• Eligibility options of 403(b)s vs 401(k)s
• Why many employees prefer 401(k)s to 403(b)s 
• Fees of 403(b)s vs. 401(k)s

In 2022, total assets in 401(k)s continued to outpace the growth of 403(b)s ( $1.4 trillion in 2022 ).  A number of factors may contribute to this trend.

If you’re curious who some of the biggest names in the space are, check out our list of top 403(b) providers .

Which organizations are eligible for 403(b) plans? 

Organizations that are allowed to offer a 403(b) plan include: 

• Organizations that fall under the 501(c)(3) Internal Revenue Code
• Public School systems
• Cooperative hospital service organizations
• Civilian faculty and staff of the Uniformed Services University of the Health Sciences (USUHS)
• Public school systems organized by Indian tribal governments
• Certain ministers (empoyloyed by a 501(c)(3), self-employed, functioning as a minister in daily responsibilities with their employer, such as a hospital chaplain)

What is the difference between an ERISA and a non-ERISA 403(b) plan?

Unlike 401(k) plans, not every 403(b) plan must comply with ERISA regulations. In fact, non-ERISA plan assets accounted for 45% of all 403(b) assets, according to an April 2023 updated report from Brightscope and ICI .

Whether a 403(b) plan is an ERISA or non-ERISA plan depends on whether the employer makes a contribution to employee accounts and the extent of their involvement. 

Non-ERISA 403(b) are often supplemental to other retirement plans offered by an employer (e.g., pensions, etc.) because Department of Labor Regulations place a number of constraints on employers that can decrease the number of employees that use the plan.  

With Non-ERISA 403(b) plans, employers: 

• Cannot provide a match (or other employer contribution) to employees; and
• Cannot adopt popular automatic enrollment or automatic escalation features

The benefit of having a Non-ERISA plan is reduced administrative and fiduciary responsibilities required under ERISA :

• May not need to file an annual form 5500
• May be exempt from annual large plan audit
• May be exempt from annual nondiscrimination tests

While avoiding ERISA requirements may seem great on the surface, lack of employee protections may be one of the reasons 403(b)’s have historically been more expensive than 401(k) plans.  In fact, in 2022 AARP wrote : 

“403(b)s lack many of the basic protections that 401(k) plans have accumulated over the years. And they are stuffed with expensive investments that may be costing participants as much as $10 billion a year in excess fees ...

How are 403(b)s and 401(k)s the same?

Both 403(b)s and nonprofit 401(k) plans have the same annual contribution limits, which for 2024 are: 

Moreover, both 403(b)s and 401(k)s support:

• Pretax, Roth or after-tax contributions
• Loans and Hardship withdrawals
• Roth employer contributions (new with 2023 Secure Act 2.0)  

403(b) vs 401(k) plans: Which is better for nonprofits?

In the past, conventional wisdom held that  403(b) plans were easier to administer than 401(k)s, but often more expensive - especially when it came to investments.  But the 2022 Secure Act 2.0 , has changed the legal differences between 403(b)s and 401(k)s considerably.  Under the new rules, administrative differences have narrowed, making 401(k) plans more popular with many non-profit organizations looking for a low cost retirement plan that is easy to administer.  To understand the key differences - let’s start with a review of the types of 403(b) plans - ERISA vs. Non-ERISA.  

401(k) vs. 403(b) - which is easier to administer?

From an administrative perspective, a non-ERISA plan is still generally easier to manage than a traditional 401(k) but comparable to a Safe Harbor 401(k).  

Unlike traditional 401(k)s, non-ERISA plans aren't subject to an annual audit and sponsors don’t have to file IRS Form 5500. Moreover, non-ERISA plans are not subject to key ERISA fiduciary standards and are exempt from the annual nondiscrimination testing . 

ERISA 403(b) plans, however, must still administer the ACP test (learn more about compliance testing here ) and file an annual 5500, but are not subject to the annual ADP and top-heavy tests .‍

401(k) vs. 403(b)s - which has more flexibility?  What is Universal Availability?

Compared to 401(k)s, 403(b) have significantly less flexibility when it comes to defining employee eligibility. Under  Internal Revenue Code 403(b)(12)(A)(ii) , most 403(b)s are subject to the  “universal availability requirement” which restricts employers from customizing eligibility based on age or service, (though some church organizations are exempt ).  

Universal availability can significantly increase the cost of the plan - especially if the non-profit plans to provide a match.  It can also significantly increase the chance of 403(b) administrative errors (it ranked #2 on the IRS’ list of top 10 403(b) plan failures ).

For example, a 501(c)3 could choose to base eligibility on 3, 6 or even 12 months of service - if they had a 401(k), but not if they had a 403(b).  Under the old rules, the primary way non-profits could limit eligibility was to exclude employees that worked fewer than 20 hours per week.    

Universal availability, however, is changing with SecureAct 2.0 , which soon requires employers to cover all employees that work at least 500 during three consecutive years.  If universal availability was hard to administer under the old rules, it will likely become more challenging after Secure Act 2.0.   

Pros and Cons of 403(b)’s vs. 401(k)’s

While easier year-end testing is indeed a benefit of non-ERISA 401(k)s, Safe Harbor 401(k)s offer employers similar ease with more flexible eligibility options which can significantly cut employer costs.

How to lower costs by switching to a Safe Harbor 401(k)

While Safe Harbor Plans require employers to provide a minimum contribution of at least 3.5%, the April 2023 update to the ICI/Brightscope 403(b) report found that nearly 40% of 403(b)’s would likely be able to switch to a Safe Harbor plan without significantly increasing their 401(k) contributions.  

Many non-profits can even lower employer contribution costs by switching to a 403(b) if they introduce service or age-based eligibility requirements!

Do nonprofit employees prefer a 401(k) to a 403(b)?

Employees are significantly more likely to use a 401(k) compared to a 403(b), suggesting that employees strongly prefer a 401(k) to a 403(b).  

According to a 2022 report from the Plan Sponsor Council of America (PSCA), only 79.4% of employees participated in their employer’s 403(b) plan, significantly less than 401(k) participation rates of 89.4%. PSCA’s 2022 reports also found that 403(b) participants saved considerably less - with an average savings rate of 6.9% vs. 8.3% for 401(k) participants . Taking into account both the higher savings and participation rates it appears that employees save nearly 40% more in a 401(k) vs. a 403(b).   

High 403(b) fees

While the prevalence of pension plans in many public sector employers may explain some of the gap, the perception of high fees may also play a crucial role.  Indeed, in 2022 Plan Sponsor wrote: 

“Despite there being a lot of good providers out there, there’s this assumption that many are high fee, low value…”

AARP was even more critical in 2022, writing:

The disturbing truth is that the retirement plans offered to more than 8 million public-school employees and many more nonprofit workers typically fall short of their private-sector counterparts.

Even the IRS noted the risks of high fees and advised that 403(b) “may have high administrative costs” as one of the primary “cons” of 403(b) plans.

Interestingly, 403(b) plan sponsors appear to be behind the curve on general perceptions as only 5.1% indicated that lowering plan costs was a key priority for 2022, according to PSCA.

The Match Matters

According to a recent article from Money , 

74% would be likely to leave their job for another company that offered better financial benefits, and the top two most enticing benefits are — again — a high-quality 401(k) or other retirement plan and a 401(k) matching program.

Unfortunately, non-ERISA 403(b)s cannot provide a company match (or other company contribution) to their employees.  

Employees value automatic savings

A recent Principal Survey , found that:

84% of workers who have been automatically enrolled into their workplace retirement plan say they are glad that their savings has been jump-started. 

Unfortunately, non-ERISA 403(b)s do not allow employers to leverage automatic savings programs like automatic enrollment with automatic savings escalations.

Are 403(b)s more expensive than 401(k)s?

While 403(b) plan fees have generally decreased over the past few years, they still have a fair amount to fall.  In fact, ICI’s April 2023 update found that the smallest 403(b)’s paid more than 1.08% in total plan fees on average while an unlucky 10% paid more than 2.3% in total plan fees.  

Are 403(b) investment fees higher than 401(k)s?

ICI’s 2023 report also showed that 403(b) Investment fees have room for improvement.  Here the smallest plans paid average fees of 0.60% and 0.78% for domestic and international stock funds, respectively.  Low-cost index funds in 401(k) plans from Fidelity and Vanguard, however, generally range from 0.3% to 0.8% - nearly 10x cheaper.

What kind of investments are offered in a 403(b) plan?

403(b) plans are also referred to as “tax sheltered annuity plans,” and not surprisingly, they include annuities in their investment menu (often alongside traditional mutual funds).  These generally come in two forms: variable annuities and fixed annuities.

While the inclusion of annuities may sound great, ICI’s April 2023 403(b) update update suggest that employees preferred mutual funds over annuities by nearly 2 to 1:

2023 403(b) fee litigation

One area where 403(b) plan sponsors seem to have a different view from 401(k) sponsors is their willingness to use their recordkeeper’s proprietary investment products. While 401(k) sponsors are increasingly embracing open-architecture platforms that allow employers to go beyond the proprietary offerings of the recordkeeper, many 403(b) plan providers load up the plans with expensive, proprietary investment products.  

Indeed, University of California settled a $13M lawsuit in 2023 related to excessive fees associated withtheir 403(b) plan. 

Which retirement plan is best for your nonprofit?

If you have a 403(b) and are looking to make employer contributions, you may want to consider who will handle the increased administrative load of an ERISA plan. Or if you are wanting to customize employee eligibility, then a 401(k) plan might be the right option for your 501(c)3.

Note: The information contained in this post is not intended to be or relied on as legal advice.  You should consult an ERISA attorney or another professional plan consultant before making any decisions or changes.

David Ramirez, CFA, is a recognized 401(k) expert with over 20 years of experience in 401(k), ERISA, cash balance plans, and ESOPs. A UC Berkeley graduate, he played a pivotal role at Financial Engines , a 401(k) advisory firm founded by Nobel Laureate William Sharpe, Ph.D., where he was a portfolio manager who helped manage over $50B in 401(k) assets.  His clients included some of the largest Fortune 500 companies and state governments.

Retirement Plans for Nonprofit Organizations

There are other types of retirement plans available to nonprofit organizations that may have fewer fees than a 403(b) plan a greater diversity of investment choices, or both. Some of the options include 401(k) plans, Savings Incentive Match Plans for Employees, and Payroll Deduction IRAs.

The features and benefits associated with each of these options vary. And there still may be cases when a 403(b) remains the right choice for your organization. But it’s a good idea to be familiar with all of the options available to nonprofit organizations. Here’s a closer look at the various retirement plans available and some of their benefits and drawbacks. 

403(b) Plans for Nonprofits

In many ways, a 403(b) plan is similar to the widely used 401(k) plan. To begin with, offering a 403(b) plan allows employees to set aside some of their salaries each pay period in individual retirement accounts, and the money is allowed to grow tax-free until it's withdrawn.

Like many other retirement plans, the Internal Revenue Service (IRS) sets annual contribution limitations for 403(b) plans. For 2024 those limits are $23,000—meaning elective salary deferrals cannot exceed that amount. Those who are 50 and older, however, can make catch-up contributions of up to $7,500 when using a 403(b) plan.

However (and this is an important distinction) the investment options available through 403(b) retirement accounts are typically more limited than the options associated with some other retirement savings plans. Generally, 403(b) account investments are limited to annuities and mutual funds. While other retirement plans (which we'll cover next) may provide broader investment choices for participants.

Also worth noting, 403(b) plans typically do not feature the capability for employers to provide matching contributions to employee accounts, while other retirement savings plans do offer this benefit as a standard component of the plan.

The fees associated with 403(b) plans are also a drawback to consider. A 2022 study from the U.S. Government Accountability Office, for instance, found that the expense ratios for the annuities and mutual funds that are part of 403(b) plans can be significant.

The report shows that fees range from about 0.01% to 2.37%. That amounts to investments costing up to 237 times more than other, lower-cost retirement plans. Additionally, there may often be surrender fees, or fees for selling or withdrawing money from an investment within a set period of time, charged when investing in annuities in a 403(b) account. Surrender fees can be as much as 10%.

401(k) Plans for Nonprofits

The most widely offered retirement plan option, 401(k) accounts allow employees to make pre-tax payroll contributions from their paychecks each pay period in the same manner as 403(b) plans. And like 403(b) plans, the money is allowed to grow tax-free until it’s withdrawn during retirement.

Just like 403(b) plans, there are annual contribution limits set by the IRS for 401(k) plans. And for 2024, the limit is $23,000, while those 50 and older are able to make $7,500 in catch-up contributions.

One of the most notable benefits or distinctions associated with 401(k) plans is that they typically give employees a wide range of investment options including stocks, bonds, and mutual funds. Equally importantly, when offering a 401(k) retirement plan, employers, including nonprofits, can make contributions to employee accounts, thus helping employees to be more adequately prepared for retirement.

While the investment diversity is indeed a benefit, as is the ability to make matching contributions, traditional 401(k) plans also come with more significant reporting and administrative requirements. Specifically, traditional 401(k) plans must adhere to non-discrimination rules established by the government.

To ensure that plans meet this requirement, employers must conduct annual tests known as the Actual Deferral Percentage and Actual Contribution Percentage tests. As the IRS explains, these tests are designed to verify that deferred wages and matching contributions from employers do not favor employees who are more highly compensated.

Penelope 401(k) Plans for Nonprofits

Penelope offers two retirement plans the Starter 401(k) Plan and the Safe Harbor 401(k) Plan.

For nonprofit organizations seeking an affordable yet beneficial retirement plan for their team, the Starter 401(k) costs just $49 per month, and an additional $3 per month per active employee. This plan is designed to be budget-friendly while still providing an essential benefit to your employees. The Starter 401(k) plan with Penelope is easy to manage and eliminates common barriers that nonprofits often face when adopting retirement plans.

While this plan does not include employer-matching contributions, it offers a robust alternative to state-sponsored plans, giving your employees an accessible way to save for their future. The 2024 contribution limit for the Starter 401(k) plan is $6,000. This plan is an excellent tool for nonprofits wanting to offer strong benefits without overstretching their budget.

The Safe Harbor 401(k) plan, on the other hand, allows nonprofits to help their employees save more through a contribution match. With Penelope, this plan starts at $125 per month, with an additional $8 per month per active employee. Compared to the Starter 401(k) plan, the Safe Harbor 401(k) plan has a higher contribution limit of $23,000 in 2024.

Savings Incentive Match Plan for Employees (SIMPLE)

For nonprofit organizations that are smaller or that may be searching for a plan with minimal operating costs or reporting requirements, the Savings Incentive Match Plan for Employees (SIMPLE) IRA may be worth considering.

SIMPLE IRAs are designed to allow both employees and the employer to contribute to a traditional IRA, according to the IRS. Available to any type of business (including nonprofits) with 100 or fewer employees, these straightforward retirement savings accounts can be a good choice for small employers or those that do not currently offer any retirement plan.

One of the most noteworthy benefits of a SIMPLE IRA is that the setup process is very straightforward. They can be established by adopting Form 5304-SIMPLE (which is available on the IRS website) and Form 5305 SIMPLE (also on the IRS website.) Employers can also opt to develop their own individually designed plan documents rather than using the IRS documents.

Another benefit of this type of account is the lack of filing or reporting requirements for the employer, which is in contrast to 401(k) plans, which must adhere to those already mentioned non-discrimination reporting requirements.

And in contrast to 403(b) plans, employers can make contributions to employees' SIMPLE accounts. In fact, the IRS requires that employers make contributions each year. The IRS requirements stipulate that employers make:

• Matching contributions of up to 3% of compensation (which is not limited by the annual compensation limit) or
• 2% nonelective contribution for each eligible employee

As part of the nonelective contribution requirements, even when eligible employees do not contribute to their SIMPLE IRA, the employer must still make contributions to each individual’s account totaling 2% of the employee’s compensation up to an annual limit, which for 2023 is $330,000.

For employees, SIMPLE IRAs also include the benefit of immediately being 100% vested, meaning the employee has total ownership of the money in the account.

Payroll Deduction IRAs

One more type of retirement savings plan to consider, Payroll Deduction IRAs are, in some ways, the simplest and easiest option on this list. These offer minimal administrative work or effort on the part of the employer, making them a potential option for nonprofit organizations that want to help employees save for retirement but do not have the bandwidth to manage the responsibilities associated with other more comprehensive employee benefit plans.

As the IRS explains : “Under a Payroll Deduction IRA, employees establish a Traditional or Roth IRA with a financial institution and then authorize a payroll deduction amount for it. A business of any size, even self-employed, can establish a Payroll Deduction IRA program.”

Establishing Payroll Deduction IRAs simply requires setting up the payroll deduction process for your employees in order to direct funds from their pay to their IRA account each pay period.

Employees choose how much they want deducted from their paychecks and depending on the IRA provider, there may be a wide array of investment options available for the money being contributed to the account. Additionally, earnings on the contributions to these IRAs are tax-deferred. 

With minimal employer involvement in these types of retirement accounts, there are very low administrative costs. There are also no annual filing requirements associated with Payroll Deduction IRAs for the employer. As the IRS explains on this front the “program will not be considered an employer retirement plan subject to Federal reporting and fiduciary responsibility requirements as long as the employer keeps its involvement to a minimum.”

And equally beneficial for small nonprofits, there is no minimum number of employees required.

However, there are indeed drawbacks in exchange for all of this simplicity. Most importantly, these plans do not allow employers to make matching contributions to employee accounts. This can be a significant issue, as it can be harder for employers to attract and retain employees who are seeking more substantial retirement programs.

Find the Retirement Plan Your Nonprofit

There’s a variety of retirement plan options available to nonprofit organizations, some of which are available even if you already offer a 403(b) plan. If you’d like to give your employees more investment options or implement a plan that allows for making employer contributions, a 401(k) or SIMPLE IRA may be worth considering. 

For smaller nonprofit organizations or those that do not have the administrative capability to support more extensive plans, Payroll Deduction IRAs may be a first step that can help employees prepare for retirement.

No matter what your size, Penelope can create a 401(k) plan tailored to your needs and budget. If you have questions about this option or any of the others on this list, call Penelope for a consultation.

Interested in retirement plans for your employees? Let Penelope support your nonprofit with their retirement needs.

Editor's Note: This blog was originally published on May 2023, and has been updated for accuracy and comprehensiveness.

If you need a retirement plan, talk to one of our specialists to  learn more about our retirement plans  at Penelope.

Mia Taylor is an award-winning journalist, finance writer, and editor who has two decades of industry expertise. She has a master’s degree in journalism and media studies and has written about finance topics for some of the country’s largest publications including Fortune, Bankrate, Real Simple, Parents, Better Homes & Gardens, Health, Policygenius, U.S. News & World Report and more.

403(b) Plans Help Non-Profit Employees Save For Retirement

Updated: Nov 3, 2023, 11:16am

A 403(b) is a tax-advantaged retirement plan designed for non-profit organizations and certain government entities. The 403(b) works a lot like its better-known counterpart, the 401(k) , although it offers a few unparalleled benefits like enhanced catch-up contributions for tenured employees. If you’re saving for retirement with a 403(b) account, here’s what you need to know.

What Is a 403(b) Plan?

A 403(b) is a tax-advantaged retirement plan for employees of non-profit organizations, like churches and hospitals, as well as some public-sector workers such as teachers and librarians.

As with all employer-sponsored retirement plans, 403(b)s offer tax-efficient growth for your retirement savings. This means the investments you buy and sell in your account are free of capital gains taxes , which helps you build your nest egg for retirement.

The contributions you make to a 403(b) account are deducted from your paycheck. With a traditional 403(b), contributions are deducted from your pay before taxes, which lowers your overall tax bill today. When you take out money from your account in retirement, you owe income taxes on the withdrawals.

If your employer offers the option of a Roth 403(b), you can choose to fund your account with money that’s already been taxed. You won’t pay any taxes when you withdraw money from the account later—even on investment earnings, no matter how much your money has earned.

403(b) Contribution Limits

For 2023, the 403(b) employee contribution limit is $22,500. Employees who are 50 or older can make additional catch-up contributions of $7,500, bringing their total contribution limit in 2023 to $30,000.

The 2024 employee contribution limit is $23,000. With a catch-up contribution—an extra allowance of up to $7,500—the 2024 total ceiling on contributions by workers age 50 and older is $30,500.

A notable benefit of the 403(b) is that employees who have worked with the same eligible organization for at least 15 years are permitted to make bonus catch-up contributions of $3,000 a year—up to a lifetime total of $15,000. These do not replace the federal catch-up contribution for those 50 and older, meaning if you were 50 or older, you could hypothetically contribute $33,000 a year for five years.

Though it’s much less common than with the 401(k), employers may also fund their employees’ 403(b) accounts with matching or non-matching contributions. For 2023, combined employee and employer contributions can be up to $66,000 or 100% of your most recent yearly salary, whichever is less. For 2024, the dollar portion of that formula is $69,000.

How to Invest in a 403(b)

Investment options available in 403(b) plans are somewhat more limited than other tax-advantaged retirement plans. You generally can choose from mutual funds and annuities. Unlike 401(k)s, you typically cannot invest individual stocks, exchange-traded funds ( ETFs ), or real estate investment trusts ( REITs ).

That said, many 403(b)s will offer you the low-cost bond and stock index funds most experts recommend for investing for retirement . You’ll want to pick a ratio of stock funds to bond funds that reflects the amount of time you have before retirement as well as your willingness to take on risk. This usually means more stock funds when you’re young and increasingly more bond funds as you age.

If your 403(b) plan offers target-date funds, they can greatly simplify your investment strategy. Target-date funds are mutual funds that automatically adjust their holdings to support you as you near your target retirement date.

You may also choose to invest part or all of your retirement savings in an annuity through your 403(b). Annuities can be complex financial instruments with high fees and lower-than-market returns, so check with a financial advisor before entering into one.

If your 403(b) plan doesn’t offer the choices you want, you can also use an individual retirement account ( IRA ) to supplement your portfolio. If your employer has a 403(b) match, however, make sure you’re contributing enough to get that before investing in an IRA.

403(b) Withdrawals

Standard 403 (b) withdrawals.

Standard 403(b) withdrawals are ones made after you turn 59 ½ and in certain other cases. If you have a traditional 403(b) account, standard withdrawals are taxed as regular income. Withdrawals from a Roth 403(b) account are tax-free.

You qualify for a standard withdrawal when you:

• Reach age 59 ½
• Become disabled
• Experience financial hardship
• Die (your beneficiaries can take withdrawals from your account)

Note: Once you turn 72 the IRS mandates certain minimal withdrawals called required minimum distributions ( RMDs ). If you aren’t already withdrawing the minimum amount to finance your retirement, you must start then or you could face a tax penalty equal to half of your RMD.

The starting age for RMDs is 73 if you reach age 72 after December 31, 2022.

Early 403(b) Withdrawals

Withdrawals from your 403(b) account that are made before you reach age 59 ½ are subject to a 10% penalty on top of taxes on any money that hasn’t been taxed before. There are a few exceptions that let you skip the early withdrawal penalties, including:

•  The Rule of 55 . If you part ways with your employer at age 55 or later, you can start taking withdrawals from that employer’s 403(b) penalty-free. This only applies to money held in that 403(b); any money in IRAs or prior employer retirement accounts will be penalized as normal.

•  Substantially equal periodic payments (SEPPs). Through a rule known as 72(t), you can agree to stick to a payment schedule and avoid the 10% penalty for early withdrawals at any age. However, you have to take these distributions for at least five years or until you turn 59 ½, whichever comes later. Talk to a financial advisor for help calculating your SEPP withdrawals.

•  Medical emergency. If you have unreimbursed medical expenses that exceed 7.5% of your adjusted gross income, you can take an early withdrawal to cover those without paying the penalty.

Before you take a 403(b) early withdrawal, review your situation and determine if you can avoid the penalty . If you can’t avoid it, consider whether it’s worth paying for early access to 403(b) funds.

403(b) vs 401(k): How They Compare

The 403(b) is often referred to as a cousin to the 401(k), and the two plans are broadly similar. Annual contribution limits are almost entirely the same, and rules governing withdrawals are identical. Both allow pre-tax and post-tax Roth contribution options as well as employer contributions. But there are a few differences:

•  Types of employers. The 401(k) plan is for private-sector employers while the 403(b) plan is for non-profit and certain government organizations.

•  ERISA exemptions. The Employee Retirement Income Security Act ( ERISA ) protects employees and their retirement savings. Unlike private-sector companies offering 401(k)s, employers that offer 403(b) plans are not required to follow certain ERISA rules. Some plans may ignore the non-discrimination requirements that prevent some employees from receiving preferential treatment. Notably, these ERISA exemptions typically prevent organizations that offer 403(b) plans from making employer contributions.

•  Extra contributions. The 403(b) plan enables bonus catch-up contributions of $3,000 per year for employees who’ve worked for the same organization for at least 15 years, up to $15,000 in total.

•  Plan administration. Insurance companies generally administer 403(b) plans, which means they may predominantly offer annuities as retirement investments, which may not be the best investment choice, particularly for younger employees. 401(k) plans, on the other hand, are often administered by big financial services firms that offer a wider range of investment choices.

•  Shorter vesting periods. Employer contributions to tax-advantaged retirement accounts often come with a vesting period. This means that employer contributions are not immediately the employee’s, and if they leave an employer before a certain amount of time, sometimes up to six years, they may forfeit some or all of their accrued employer contributions. 403(b) plans either lack vesting periods or offer relatively brief vesting periods.

Should You Invest in a 403(b)?

Investing in a 403(b) provides you with a tax-advantaged way to save for retirement and build wealth for the future. That said, depending on the investment options available in your 403(b), you may prefer to invest in a retirement account outside of your workplace, like an IRA.

• What Is A Roth 401(k)
• What Is A 401(k) Match
• What Is A Defined Benefit Plan
• What Is A 401(k) Plan
• What Is An Annuity
• How To Save For Retirement
• How To Invest For Retirement
• How To Retire Early After A Layoff
• How To Get A 401(k) Loan
• How To Roll Over Your 401(k) To An IRA
• 401(k) Contribution Limits
• 4% Rule For Retirement Withdrawals
• What Is A Backdoor Roth IRA
• Top 10 Retirement Tips
• How the 25x Rule Helps Save for Retirement
• Traditional IRA Calculator
• Roth IRA Calculator
• Financial Advisors: How To Choose

9 Best Vanguard Mutual Funds

10 Best Fidelity Mutual Funds Of July 2024

10 Best High-Yield Bond Funds Of July 2024

Best Total Bond Market Index Funds Of 2024

9 Best Retirement Income Funds Of 2024

7 Best Target Date Funds For Retirement

Miranda Marquit has been covering personal finance, investing and business topics for almost 15 years. She has contributed to numerous outlets, including NPR, Marketwatch, U.S. News & World Report and HuffPost. Miranda is completing her MBA and lives in Idaho, where she enjoys spending time with her son playing board games, travel and the outdoors.

• Agribusiness Construction Dealerships Distribution Education Financial Institutions Financial Services Fintech Governments Healthcare Hospitality Accommodations Insurance Manufacturing Nonprofits Private Equity Real Estate Technology Tribal Gaming and Government
• Assurance Accounting services Audit and assurance Organizational performance Leadership development Strategy and operations Outsourcing Finance and accounting Human resources Technology Operations C-suite Private client services Estate and tax planning Business transition strategy Wealth management and investment advisory services Risk advisory ESG services Forensic advisory Fraud investigation and litigation support Governance risk and controls Internal controls Operational risk Regulatory and compliance Technology Tax Credits and incentives Individual tax International tax State and local tax services Transaction advisory Buy-side Sell-side Investment banking Valuation services Wipfli Digital Custom software & apps Cybersecurity Data & analytics Digital strategy E-commerce Enterprise solutions Managed services
• Business Intelligence Microsoft Power BI Microsoft Fabric Planful Qlik Snowflake CRM Microsoft D365 Salesforce ERP business software Complete Solution for Job Shops and Contract Manufacturers Microsoft Dynamics 365 Business Central Microsoft Dynamics 365 Project Service Automation Microsoft Dynamics GP Oracle NetSuite Sage Intacct Financial solutions Microsoft Dynamics 365 Business Central Microsoft Dynamics GP Microsoft Dynamics SL Oracle NetSuite Procore QuickBooks Sage Intacct iPaaS solutions Boomi MuleSoft Technology management Microsoft Azure Microsoft Office 365 Wipfli Marketplace Wipfli Connect Industry CRM Solutions Wipfli Connect for Banking Wipfli Connect for Contractors Wipfli Connect for Manufacturing Wipfli Connect for Nonprofits Wipfli Connect for Real Estate Integrated Products for Sage Intacct AssetEdge CFO Connect for Sage Intacct Concur Connectors for Sage Intacct EMRConnect for Sage Intacct HCMConnect LM-2 on Sage Intacct PositivePay for Sage Intacct Integrate invoice processing & AP automation with Concur Connectors Connectors for Dynamics 365 Business Central Connectors for Dynamics GP Connectors for Dynamics SL Connectors for Finance and Operations Connectors for NetSuite Connectors for Sage Intacct
• About us The Wipfli Way Living our values DEI Serving our communities The Wipfli Foundation Awards Corporate development Annual report Partners and associates Leadership team Window into Wipfli Media Logo and trademark
• RESOURCE HUB
• All openings Careers at Wipfli Diversity, equity and inclusion Experienced professionals How we invest in your growth Student opportunities

Retirement plans 101: How to start (or evaluate) a plan for your nonprofit

• Outsourced human resources

A retirement savings plan is a “must-have” benefit for nonprofits to attract top talent. But setting up or changing a plan can be confusing, especially if you don’t have a specialized finance background.

What’s more, executive leaders have a fiduciary responsibility to manage the plan responsibly. If they don’t, they could be held personally liable.

Don’t fret. These hurdles are manageable with a little homework and support. Here’s a crash course in retirement plans for nonprofit and government agency leaders: 

Types of retirement plans for nonprofits

Most nonprofits choose a 401(k) or a 403(b) retirement plan for their employees. Traditionally, 401(k) plans were offered to employees of for-profit corporations and 403(b) plans were available to nonprofit workers. But today, some nonprofits can choose either type of plan.

Testing requirements, contribution limits and eligibility vary between 403(b) and 401(k) accounts. For example, employees with a 403(b) can contribute to the plan as soon as they start work. Because 403(b) plans offer “universal availability,” they’re not subject to the same testing requirements as 401(k) plans (like the ADP and top-heavy tests).

 A 403(b) plan could be set-up three different ways: as a group annuity contract, an individual annuity contract or a custodial account.

Knowing your plan type and how it’s set up is part of your fiduciary responsibility. Depending on how the account is set up, the fees and disclosure requirements may change. If you know how your plan is set up, you’ll know where to look to review, benchmark and compare information.

Who’s responsible?

Anyone that exercises discretionary authority or discretionary control with respect to the management or administration of the plan is a fiduciary. In terms of retirement plans, fiduciary responsibility covers four main “promises.” A fiduciary is expected to:

• Act solely in the best interest of the participants and their beneficiaries.
• Act for the exclusive purpose of providing benefits to workers participating in the plan and their beneficiaries, and defraying reasonable expenses of the plan.
• Carry out duties with the care, skill, prudence and diligence of a person familiar with such matters.
• Ensure all document provisions are followed.
• Diversify plan investments.
• Understand the responsibilities of the plan’s service providers, and ensure they are completing their duties.

How do I become an expert?

Even if finance isn’t your fiduciaries’ “day job,” they’re still expected to administer their duties with the same skill and care as an expert in the field. Keep that in mind as you fill board openings. Or, consider working with a trusted advisor who can guide you through document reviews and discussions.

Two steps (performed on repeat) go a long way toward fulfilling your fiduciary responsibility: review and compare.

• Review policy statements, plan documents and applications to make sure they are accurate; fees should be disclosed and be reasonable for the services provided.  
• Review your investments, contribution rates and participation rates.
• Compare everything to your plan documents and industry benchmarks.

The DOL recommends you review the plan regularly, and ERISA attorneys recommend benchmarking your plan every three years.

Want to learn more?

Get a crash course on everything you need to know about offering a retirement plan to your employees, including the various plan types available to nonprofits/governmental entities and the advantages and disadvantages of each at our National Conference Virtual Training Experience. Learn more on our conference website .

Interested in help with retirement plans?

Our associates can help you build a retirement plan that fits your needs today and tomorrow. See our solutions .

Fill out the form below, and we’ll be in touch to discuss your nonprofit’s needs.

Client Success story

See how Wipfli’s data-driven insights set Orange County Head Start up to retain top talent.

Article Download

Please register, contact information.

* = required fields

First Name *

Last Name *

Phone number *

• Racial Justice
• Collections
• Climate Justice
• Health Justice
• CONTENT TYPES

Upcoming Webinars

• Complimentary Webinars
• Premium On-Demand Webinars
• Submissions

Retirement Programs: Which One Is Right for Your Nonprofit?

Thomas Raffa

With all the current changes and additions to regulations covering retirement programs, the choices of plan types have expanded—but so have the possible pitfalls to installing and maintaining a competitive retirement program for your nonprofit organization. This article is meant to cover some of the more popular “qualified” retirement plans available to nonprofits and some basic requirements to adopt and maintain an effective plan for your organization and its employees.

A “qualified” retirement plan is one that provides:

• A tax exemption for the fund that is established to provide benefits; 1
• A deduction by the employer for contributions made to the fund; 2 and
• A deferral of the taxes to be paid by the employee on the employer’s contributions made on the employee’s behalf, the employee’s contributions, and the earnings that may accumulate on both within the retirement fund. 3

Standard Retirement Programs

There are two broad categories for qualified retirement plans: defined benefit plans and defined contribution plans. Defined benefit plans include pension and annuity plans that offer a specific benefit to the employee throughout his or her retirement. 4 < The benefit the employee is to receive at or during his or her retirement is based upon the amount of the employee’s wages and the years of service with the employer. An actuary must be employed each year to determine an amount, based upon certain assumptions, 5 that the employer must contribute to the plan trust on behalf of the employees to cover retirement benefits for each current employee as projected through retirement. The money is not specifically allocated to individual accounts maintained for each employee and employees cannot contribute into such a plan on their own behalf. In a defined benefit plan, the employer is solely responsible for funding the plan and ensuring that there are enough dollars in the plan trust to cover the retirement benefits projected by the actuary for the employees.

Defined benefit plans have lost their popularity over the years, especially among smaller nonprofit employers, as the annual costs are often unpredictable and the employer must fund the amounts as required by law each year and as determined by the actuary for the plan to be in compliance. If interest rates increase and performance of the investments within the plan are solid, the employer may see a reduction in the required annual contributions. However, costs are likely to go up in times of poor market performance. Changes in personnel within an organization can also affect the volatility of the required contributions. The risk (and reward) is on the employer; the employee takes no responsibility for contributions, investment selection, or performance of the fund.

Defined contributions plans include profit sharing and money purchase plans. For such plans a separate accounting must be provided for each employee who is covered by the plan, and the employee’s retirement benefit will be based solely on contributions made to the plan by the employer (and employee if allowed) and the earnings on these contributions. 6 The reason these types of plans are coming more into favor is not just that the employer has more control over the amounts the organization is required to contribute to the plan each year on behalf of its employees, it is also that the employees are allowed to “self-direct” the investment of contributions made on their behalf. Typically, the employee’s choice of investments is limited to a select group of investments; however, even with a limited number of funds, the employee now takes on the responsibility for the outcome of the dollars that will eventually be available at his or her retirement. The earnings (and losses) in each employee’s own investment portfolio are dictated by the investment choices made by that employee. In addition, a feature can be added to such plans to allow for the employee to contribute some of his or her compensation to this retirement portfolio (see “401(k) plans” below).

Of the two types of defined contribution plans available, profit sharing plans allow the employer more flexibility in the amount of the contributions made each year, in that the nonprofit organization can change the amount of the contributions it chooses to make each year on behalf of its eligible employees—as long as the contributions are “substantial and recurring.” The term “profit sharing” is a misnomer, however, as the contributions made annually to the plan have nothing to do with profits and such a plan can be maintained by a nonprofit organization. 7

Money purchase plans are also a type of defined contribution plan; however, unlike a profit sharing plan, an employer’s annual contributions are fixed (within the plan documents) as a percentage of eligible employees’ annual compensation. 8 For example, under a money purchase plan, the plan may require that the employer contribute 5% of each participating employee’s wages with no regard to the financial performance of the organization for that fiscal period.

Annuity plans are another form of defined contribution plans, which are funded through the direct purchase by the employer of an annuity contract or contracts for the employees. 9 In addition, certain nonprofit organizations 10 may provide retirement benefits for its employees through the purchase of annuities or by contributing to a custodial account invested in mutual funds. 11 This type of plan is typically referred to as a “403(b) plan” or a “tax-sheltered annuity plan” (TSA).

Also, 401(k) plans are now available to nonprofit organizations. In this type of plan, all contributions are considered to be employee contributions because the employee is given the option of taking the contribution in cash or having it paid to the plan. This is known as an “elective contribution” because the contributions coincide with a salary reduction agreement.12 Some know 401(k) plans as “cash or deferred arrangements” (CODAs) and in many cases, an employer may add a 401(k) “option” to the defined contribution plan so that both employer and employee contributions can be made to the employee’s account.

Simpler Retirement Programs

In addition to the standard plans, current law allows for SIMPLE13 retirement plans for employers who have 100 or fewer employees who received at least $5,000 of compensation from the employer in the preceding year.14 However, the employer is not allowed to maintain any other plan. An eligible employer who establishes and maintains a SIMPLE plan for at least one year, but fails to qualify in a subsequent year (i.e., the employer employs more than 100 employees making in excess of $5,000 each per annum), will continue to be considered eligible for the two years following the last year in which they did qualify.15

There are two types of SIMPLE plans: a SIMPLE IRA and a SIMPLE 401(k). A SIMPLE IRA must permit each eligible employee to elect to have the employer make payments either directly to the employee in cash or as a contribution (i.e., a percentage of the employee’s compensation) to the employee’s SIMPLE account.16 Contributions are limited to $9,000 for 2004 and $10,000 for 2005, which are lower than employee contributions allowed in a standard 401(k) or 403(b) retirement program and, while employer contributions can be made to match these employee contributions, the employer contributions cannot exceed 3% of the contribution made by the employee contribution.17 This too is less than the limits imposed on the standard retirement program options. However, establishing and maintaining a SIMPLE program is, well, much simpler.

There is also little or no cost to establish and administrate such programs.

For standard 401(k) and 403(b) programs, plan documents must be adopted and filed with the authorities, summary descriptions of the plan must be given to each employee, annual discrimination testing must be performed by a qualified professional, and an information return (i.e., the Federal Form 5500) will need to be filed. Start-up costs to establish a qualified plan can run in excess of $1,000, while costs to ensure that the plan stays in compliance with ever-changing regulations as well as for annually testing for discrimination and filing the information return can cost an additional $750 to $1,500 each year.

However, for a SIMPLE IRA plan, a straightforward three-page form need only be completed by the employer to establish the plan. The form is not filed with the authorities, but rather maintained in the employer’s files. No annual filing or discrimination tests are required.

Sign up for our free newsletters

Subscribe to NPQ's newsletters to have our top stories delivered directly to your inbox.

By signing up, you agree to our privacy policy and terms of use, and to receive messages from NPQ and our partners.

As such, smaller nonprofits should consider using the funds they would spend to establish and administrate a 401(k) or 403(b) plan to make an additional contribution on behalf of their employees within a SIMPLE plan.

The limitations of employee contributions for a SIMPLE 401(k) plan are the same as the SIMPLE IRA, and the matching limitations are basically the same as well. Again, if you can live with the reduced contributions limits, the advantage to a SIMPLE 401(k) plan over the standard plan is that there are fewer tests for plan discrimination and no annual filing requirements, and as such, the cost to implement and maintain it will be less.

Steps to Implementation

While the laws and regulations governing qualified retirement programs are complex, this should not discourage a nonprofit organization from installing and aggressively funding a qualified pension plan. If we in the sector intend to attract and retain qualified individuals, we must provide competitive benefits, and retirement benefits are certainly some of the more important ones, especially for those employees with long-term commitments to our organization.

Determine the amount of funds your organization may be able to set aside for your employees annually. If the funds are significant, consider a defined contribution plan. If your organization cannot provide more than a few hundred dollars per employee (or a few thousand in total) and you have fewer than 100 employees, consider a SIMPLE plan.

Ask your employees about their interest in saving on their own behalf for their retirement. An employer may find that a confidential questionnaire given to each employee may assist them in making an informed decision about the type of plan they eventually establish. Ask the employees the amount or percentage of their compensation that they are likely to set aside if a plan were to be put in place and how much more they might be induced to save if the employer were to match their contribution. Be certain the employee understands the effect on his or her take-home pay in making a contribution with every pay period. Remember that federal and state income taxes are deferred on such contributions, so any contribution made by your employees should have less of an effect on their take-home pay than they might think (see table on page 80). Encourage your young people to invest in their retirement. The time value of money has an amazing effect on the dollars you set aside in the early years of your employment. For example, if an employee were to start saving for retirement at age 33 by setting aside $100 each month into a qualified pension plan through age 65 for a total investment of $39,600, he or she would have approximately $170,000 available for retirement at age 65. However, if he or she started to save at age 25 and stopped at age 33, for a total investment of only $10,800, that balance would accumulate to approximately the same amount of $170,000 at age 65.18 The idea is convince your employees to start early and to continue to contribute a percentage of their pay, as their pay increases, through the day they retire. They will be happy they did and the more participation among your employees within your defined contribution program, the more likely you will be to pass the annual discrimination testing.

If you decide that a SIMPLE plan is the way to go, all you need to do is establish tax-deferred accounts for your employees with any reputable bank or investment firm. Cost should be minimal. Just be certain to ask about asset management charges, which will fluctuate depending on the type of investments you may select for the plan.

If you do decide to go with a defined contribution plan, the amount you plan to invest annually (and the number of participating employees) is likely to determine the companies that are willing to do business with you. Large 401(k) providers typically will not work with small groups unless big dollars are involved. 403(b) providers tend to be more lenient with such requirements.

In addition, it is important to know that the company providing the investment vehicles for your pension contributions may not be in the business of administrating the defined contribution plan (i.e., ensuring compliance with the law). In such cases you need a third party administration (TPA) company to assist in the establishment and annual maintenance of the plan. (Such services and fees have been described previously in this article.)

When selecting either company, be certain to obtain a letter of engagement defining the services and detailing the fees. In addition to an asset management fee assessed on your plan investment, the investment company or investment manager may also charge additional fees for “other services” on the account.

While your organization should proceed with caution when implementing and maintaining a qualified retirement program, it should proceed. We owe it to our employees to give them a vehicle in which to save for their retirement and to assist them in the savings through making as much of an employer contribution as possible. Salary or hourly wages is only a part of compensation and we, as employers, should not make it the only part. I have seen many of my nonprofit clients faced with the dilemma of an employee with 10 to 20 years or more of tenure with their organization and no significant dollars on which to retire. It is daunting to think that after so many years of serving a nonprofit organization and building its program and reputation, your long-term employees might retire with little or no savings. Plan ahead and plan now. We, in the sector, dedicate our lives to helping others. Don’t forget the employees that dedicate themselves to such noble causes.

1. Internal Revenue Code Section 501(a); Reg. §1.401(f)-1(c)(1) 2. Code Sec. 404. An employer/company can deduct the amount of the contribution it makes to a qualified plan on behalf of its employees subject to certain limits. While such a “business” tax deduction may not necessarily be of interest to a tax-exempt nonprofit, the nonprofit should still comply with the limits set forth in the law, as allowing contributions to go beyond such limits will increase the possibility of not passing the discrimination tests that may be required depending on the type of qualified pension plan in place with the employer. 3. Code Sec. 402(a). Federal and state income tax is deferred on contributions made to a qualified plan by or on behalf of the employee subject to certain annual limitations. Employee contributions are subject to applicable social security tax. 4. Code Sec. 414(J) 5. Reg. §1.401-1(b)(1)(i) 6. Code Sec. 414(j) 7. Code Sec 401(a)(27) 8. Reg. §1.401(b)(1)(i) 9. Code Secs. 403(a)(1) and 404(a)(2) 10. Public school systems and tax-exempt educational, charitable, or religious organizations (i.e., 501(c)(3) organizations) 11. Code Sec. 401(b)(1)(A) 12. Code Secs. 401(k) and 402(e)(3; Reg. §1.401(k)-1 and 1.401(a)-1(d) 13. SIMPLE is an acronym that stands for Savings Incentive Match Plan for Employees. 14. Code Sec. 401(k)(11)(C) and 408(p)(2)(C)(i)(I) 15. Code Sec. 40-1(k)(11)(A) and (D)(i); Code Sec. 408(p)(2)(C)(i)(II) 16. Code Sec. 408(p)(2)(A)(ii) 17. Code Sec. 408(p)(2)(A)(iii) and Code Sec. 408(p)(2)(C)(ii). 18. This calculation assumed an annual interest rate of 7.5% compounded monthly. 19. Although you can use fewer hours and a lower age, you cannot generally go above these amounts. 20. For for-profit entities, there are limitations on the amount of contributions that the employer can deduct. 21. Vesting represents the non-forfeitable interest of the employee in his or her account balance. By law, an employee is fully vested in any contribution he or she makes on his or her own behalf. Contributions made by the employer on behalf of the employee will “vest” based on the vesting schedule defined within the plan documents (with the exception of a SIMPLE IRA, which is always 100% “owned” by the employee whether the contribution was made by the employer or the employee). Thus, if a plan defines vesting at a rate of 20% annually, an employee would receive 40% of the employer’s contributions if that employee were to leave the employ of the organization after two years of service (as defined by the plan). 22. The top-heavy test is a test designed to ensure against a plan primarily benefiting the key employees or those that are considered by law to be highly compensated. A plan that does not pass this test is considered to be top heavy. 23. The ADP or the Actual Deferral Percentage test is a special test designed to limit the extent to which elective contributions made on behalf of highly compensated employees may exceed the elective contributions made on behalf of non-highly compensated employees under a 401(k) plan. 24. The ACP or the Actual Contribution Percentage test is a special nondiscrimination test applied to employer matching contributions and employee contributions. 25. The limits established by Internal Revenue Code (IRC) Section 415 currently require that annual additions to an employee’s account under a defined contribution plan cannot exceed the lesser of $40,000 or 100% of the employee’s compensation (not exceeding $200,000). For defined benefit plans, the IRC defines the maximum annual retirement benefit for any participant as one not to exceed the lesser of $160,000 or 100% of the participant’s average compensation (not exceeding $200,000) for the participant’s three consecutive years of highest compensation.

About the Author

Thomas Raffa is the managing partner of RAFFA, P.C., a certified public accounting, technology, and consulting firm based in Washington, D.C., with over 100 professionals dedicated to the nonprofit sector. Call 202-822-5000, www.raffa.com, www.iknow.org.

About the author

Thomas Raffa is the managing partner of Raffa and Associates, P.C., a certified public accounting and consulting firm based in Washington D.C. with a financial services subsidiary in Maryland. The firm currently employs 100 professionals who serve the nonprofit sector by providing a wide variety of services to over 300 international, national, and community-based nonprofit organizations. Tom has 24 years experience and currently serves on the board of directors of two national nonprofit organizations. He often speaks at seminars and training workshops on accounting, tax, and business-related matters.

Become a member

Support independent journalism and knowledge creation for civil society. Become a member of Nonprofit Quarterly.

Members receive unlimited access to our archived and upcoming digital content. NPQ is the leading journal in the nonprofit sector written by social change experts. Gain access to our exclusive library of online courses led by thought leaders and educators providing contextualized information to help nonprofit practitioners make sense of changing conditions and improve infra-structure in their organizations.

You might also like

Hierarchy and Justice

Salvadoran Foreign Agent Law Threatens Human Rights Movements

Charitable Tax Reform: Why Half Measures Won’t Curb Plutocracy

Healing-Centered Leadership: A Path to Transformation

Into the Fire: Lessons from Movement Conflicts

How Nonprofits Can Truly Advance Change

Recruiting & Managing the Board You Need

Hidden Gems: Actionable Lessons from The Untold Stories of Black Philanthropists

Salvadoran Foreign Agent Law Threatens Human Rights...

Charitable Tax Reform: Why Half Measures Won’t Curb...

• Privacy Overview
• Strictly Necessary Cookies

This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.

Strictly Necessary Cookie should be enabled at all times so that we can save your preferences for cookie settings.

If you disable this cookie, we will not be able to save your preferences. This means that every time you visit this website you will need to enable or disable cookies again.

Retirement Plans for Employees of Nonprofits

Most nonprofit employers offer retirement plans to their employees.

Stockbyte/Stockbyte/Getty Images

More Articles

•   1. Do You Have to File Form 5500 for a Simplified Employee Pension?
•   2. How Much Money Do I Need to Start a Retirement Account?
•   3. Are IRA Accounts ERISA Qualified?

Retirement benefits can help a nonprofit organization attract the best talent, and most employers in this sector offer retirement plans. But many nonprofits, particularly the smaller ones, fear retirement plan costs and bureaucratic red tape even though low-cost retirement plan options are available with little or no hassle. The Internal Revenue Service shows that nonprofits in 2013 can select from at least six different retirement plans with differing levels of employer involvement.

Common Benefit

Three-fourths of employees in the nonprofit sector have access to an employer-sponsored retirement plan, according to a 2012 survey of the sector by TIAA-CREF Institute and the Independent Sector website. Of those with plan access, 69 percent had a defined-contribution retirement plan and the remainder a traditional defined-benefit pension plan. Of those with access to a defined-contribution plan, 76 percent said they were enrolled and making contributions. The study showed that just 9 percent of those employed by large nonprofit organizations lacked access to an employer-sponsored retirement plan, but it also said 34 percent of employees in organizations with fewer than 50 employees had no access to an employer-sponsored plan.

Simplest Arrangement

The simplest retirement plan option for nonprofit organizations, according to the IRS, is a payroll deduction individual retirement account in which the employer withholds up to $5,500 annually in IRA contributions from the employee’s pay and deposits the money in the employee’s IRA. This plan can even be offered by small nonprofits. No reports or audits are required, because the employer’s only involvement is depositing withheld funds into employee IRAs.

Employer Contributes

Nonprofit employers who want to contribute to their employees’ IRAs can establish a Simplified Employee Pension IRA -- or SEP IRA -- and contribute to the employee’s IRA up to 25 percent of the employee’s compensation. Or they can set up a Savings Incentive Match Plan for Employees IRA, or SIMPLE IRA, giving the employee an opportunity to contribute up to $12,000 and the nonprofit to match employee IRA contributions up to a maximum 3 percent of the employee’s compensation. These programs can be set up easily and don’t require the nonprofit to file annual reports.

Defined Contribution Plans

Nonprofit employers can also offer their workers defined-contribution plans similar to the 401(k) plans offered by for-profit corporations. Any nonprofit organization can offer employees a 457(b) plan with a maximum contribution limit of $17,500 for combined employee and employer contributions. Charities and other 501(c)(3) nonprofits also can offer a 403(b) plan, to which the employee can contribute up to $17,500 a year. The employer also can contribute, with a limit of $51,000 or 100 percent of the employee’s compensation on combined employee and employer contributions.

Traditional Pension

Nonprofit employers also can offer a traditional employer-funded, defined-benefit pension plan. These programs pay a specified monthly amount when the employee retires. Traditional pension plans require that an actuary annually determine the contribution level needed to provide the promised retirement benefits. Traditional pension plans are subject to audits and nondiscrimination testing.

• Independent Sector: Financial Security and Careers in the Nonprofit and Philanthropic Sector
• Internal Revenue Service: Publication 4484 -- Choosing a Retirement Plan

Herb Kirchhoff has more than three decades of hands-on experience as an avid garden hobbyist and home handyman. Since retiring from the news business in 2008, Kirchhoff takes care of a 12-acre rural Michigan lakefront property and applies his experience to his vegetable and flower gardens and home repair and renovation projects.

Related Articles

Do you have to file form 5500 for a simplified employee pension, how much money do i need to start a retirement account, are ira accounts erisa qualified, the difference between a simple ira & a 401(k), advantages & disadvantages of a sep ira, what is a fica alternate retirement plan, can i contribute to a simple ira from a non self-employed income, annuities vs. sep, is a simple ira a safe investment, pretax contributions and social security payroll deductions, can i convert a pension to an ira, types of tax-deferred retirement accounts.

Zacks Research is Reported On:

Zacks Investment Research

is an A+ Rated BBB

Accredited Business.

Copyright © 2024 Zacks Investment Research

At the center of everything we do is a strong commitment to independent research and sharing its profitable discoveries with investors. This dedication to giving investors a trading advantage led to the creation of our proven Zacks Rank stock-rating system. Since 1986 it has nearly tripled the S&P 500 with an average gain of +26% per year. These returns cover a period from 1986-2011 and were examined and attested by Baker Tilly, an independent accounting firm.

Visit performance for information about the performance numbers displayed above.

NYSE and AMEX data is at least 20 minutes delayed. NASDAQ data is at least 15 minutes delayed.

How to set up a 403(b) for your nonprofit

Table of contents

How to setup a 403(b) plan for nonprofit or 501(c)(3) organizations

Want to set up a 403(b) plan for your nonprofit organization.

Key Takeaways

403(b) plans are similar to 401(k)s and allow the same contribution levels and make pre-tax contributions.

403(b) plans are generally offered by public education institutions and certain tax-exempt organizations.

Learn how to review plan details, establish a written program, complete forms, and address any errors of your 403(b) plan.

Data shows there's a need to ramp up the retirement savings of those employed in the nonprofit sector. In 2019, there were only about one hundred 403(b) plans with approximately 360,000 participants in those plans. Given that there are about 12.2 million Americans employed in the nonprofit sector, this translates to a 23% adoption rate of 403(b) plans. On the other hand, Vanguard reported an 82% participation rate for other types of defined contribution plans , such as 401(k)s.

Helping members adequately prepare for retirement is an uphill struggle shared by many nonprofits, as the staff consistently focuses on its core mission: helping others. Given the difficulties, many small- and mid-size nonprofit organizations simply let their employees fend for themselves with individual retirement accounts at whatever brokerage firm they can find. But nonprofit workers, who are often underpaid, may put themselves at severe financial risk by not saving for retirement at all if they lack a workplace retirement plan.

Providing a workplace retirement savings plan for these nonprofit workers should become a high priority and one of the best solutions is to set up a 403(b) plan .

Unsure where to start? Read our guide on how to find the best 403(b) for your nonprofit .

Get a tax-advantaged 403(b) plan

Learn more about Human Interest's zero transaction fee, customizable 403(b) plans.

A 403(b) plan operates very similarly to a 401(k) retirement savings plan . Both types of plans allow participants to contribute up to $23,000 in 2024 (with an extra $7,500 in catchup contributions for those age 50 and up) and make pre-tax contributions. The key difference between a 401(k) and 403(b) is the type of business that offers them:

401(k) plans are generally available to employees of for-profit companies

403(b) plans are generally offered by public education institutions and certain tax-exempt organizations

Another key difference is that a majority of 403(b) plans include some kind of annuity form of benefit issued by a state-regulated insurance company. However, this may change with SECURE Act proposals , which aim to make it easier for 401(k) plan administrators to offer annuities.

Step 1: Review the details of the IRS’s 403(b) pre-approved plan program

Bookmark the 403(b) pre-approved plan program section of the IRS website because it provides a great overview of the 403(b) setup process, including sample language that meets pre-requirements from the IRS.

Step 2: Establish a written program for your 403(b) plan

The majority of 403(b) plans must have a written program that contains mandatory provisions from the IRS, including eligibility of participants, amount of elective deferrals, and timing and form of plan distributions. You can also choose to add optional provisions , including clauses for deferral catch-up contributions, ways to make ROTH contributions , and details on plan loans.

Here are some IRS resources to establish your 403(b) written program:

Section 403(b) pre-approved plan template

Section 403(b) Prototype Plan Provisions

Tip: If your organization falls under a larger organization or is familiar with the 403(b) plan of another comparable organization. You may opt to go with a pre-approved retirement plan. The IRS keeps a list of 403(b) plans that were submitted for review from June 2013 to November 2017.  You may use those written programs that reflect the 403(b) regulation’s requirements and tailor the language for use by your organization.

Step 3: Complete and file the necessary IRS forms

Key forms to file with the IRS are:

Application for Approval of Section 403(b) Pre-Approved Plan (fillable PDF)

Form 2848 , Power of Attorney and Declaration of Representative

Form 8821 , Tax Information Authorization

Step 4: Address plan errors

To expedite the setup process, avoid common 403(b) plan errors with the IRS 403(b) Fix-it Guide .

Depending on the type of error, you may be able to institute a self correction program without any IRS filing or penalty or may be subject to a voluntary correction program (VCP) with IRS formal filing and applicable penalty. A common error is to miss the December 31st deadline to adopt a written plan, here’s an overview on how to correct that plan error .

If required to file a VCP, you’ll need the following documents:

Form 14568, Model VCP Submission Compliance Statement. This form is a model compliance statement. Use attachments to explain the failure, how you’ll correct it, and what steps you’ll take to make certain the error will not occur again.

Form 14568-B, Schedule 2, Nonamender Failures (other than those to which Schedule 1 applies) and Failure to Adopt a 403(b) Plan Timely. Submit only this schedule because it applies to the failure to amend by the required deadline.

A copy of the signed and dated written 403(b) plan your organization adopted to comply with the final 403(b) income tax regulations.

Required statements for submissions involving 403(b) plans that are signed and dated.

If applicable Form 2848, Power of Attorney and Declaration of Representative (Instructions) or Form 8821, Tax Information Authorization. See additional details below

All completed documents will have to be converted to PDF documents.

NOTE: Combine all documents in this list into a single PDF file. If combined file exceeds 15MB, remove some documents so that it does not exceed this limit. The documents that could not be included in the combined PDF file can be faxed to the IRS at 855 203 6996.

Form 8950, Application for Voluntary Correction Program, if required to make a fee payment

Four strategies to minimize 403(b) setup costs

After reviewing the list of steps above, you can quickly realize that setting up involves not only money but also adequate time to timely and properly process forms and avoid any potential penalties! Here are some ways to help your lower your setup costs.

1. File Form 5500

Under the current legislation, eligible small businesses can claim 50% of necessary eligible startup costs for a workplace plan up to a maximum of $500 per year for three years. This adds up to a total of $1,500 in tax credits over the three-year period.

2. Chase low fees

Some 403(b) providers may charge hidden fees (such as front- or back-end loads, commissions, surrender charges, asset-based administration “wrap” fees). It doesn’t have to be that way. Take for example, Human Interest, which provides transparent pricing :

Employers pay a monthly base price starting $120 per month, plus $5 per employee per month.

Employees pay a combined investment expense of just 0.066% 1 of their account balance monthly (compared to a monthly average of 0.133% 2 for small 401(k) plans).

3. Claim business deductions

It’s important to remember that 401(k) employer contributions are tax-deductible .

4. Get peace of mind

Seek robust services and features that go beyond the basics to meet your needs. Take the time to talk to your provider on how they plan to comply with legal requirements, such as filing Form 5500 ,  and your personal ones, such as adding a Roth 403(b) option to allow your employees to make after-tax contributions.

The bottom line is setting up a savvy business strategy. A retirement savings plan is among the most wanted employee perks and a powerful tool to attract (and retain!) talent.

Human Interest has helped several eligible small businesses to set up, implement, and maintain a 403(b). We’ll take care of creating participant accounts, processing contributions every pay period, syncing them with your payroll provider, and ensuring that all compliance testing and paperwork is completely taken care of.

If you would like to learn more about the process of setting up or improving a 403(b) or any other plan that better suits your organization’s needs, we’d be happy to help.

We believe that everyone deserves access to a secure financial future, which is why we make it easy to provide a 401(k) to your employees. Human Interest offers a low-cost 401(k) with automated administration, built-in investment education, and integration with leading payroll providers.

Contribution Limits for 403(b) Retirement Plans

How to find the best 403(b) plans: What to consider

403(b) Plans: Retirement Plans for Nonprofits

Subscribe to our retirement roadmap newsletter.

Retirement isn’t just a destination. It’s a journey, and we’re here to help you. Our newsletter delivers succinct and timely tips, reviewed by Financial Advisors, to help you navigate the path to financial independence.

By providing your email above or subscribing to our newsletter, you agree to our Privacy Policy . You also elect to receive communications from Human Interest.

Investment advisory services are offered through Human Interest Advisors LLC, a Registered Investment Adviser and subsidiary of Human Interest Inc. An investment advisory fee is paid to Human Interest Advisors (HIA) of 0.01% of plan assets and a separate fee for recordkeeping services and custody-related expenses is paid to Human Interest Inc. (HII) of 0.05% of plan assets. Both fees are deducted on a monthly basis from the employee's account according to the HII and HIA Terms of Service . All prices are exclusive of applicable taxes. If the plan sponsor elects to hire an external investment advisor, the plan sponsor will pay such advisor as agreed between the plan sponsor and advisor. For more information, please see our pricing page . Similar services may be available at a lower cost from other vendors. Average fund fees as of 3/31/24. Asset-weighted average of mutual fund annual operating expenses ("expense ratio") for all plan participants invested in Human Interest Advisors' Model Portfolios ("Models"). Provided for illustrative purposes only. Actual, average fund expenses a participant experiences vary based on the specific Model selected, allocation changes to Models, whether participants opt out of Models and choose their own investments and allocations, or allocation drift, especially in volatile markets. Model allocations and underlying mutual fund expenses are subject to change. Before investing, carefully review the fund’s prospectus, which includes, among other things, a description of fees and expenses a fund will charge.

The average investment expense of plan assets for 401(k) plans with 25 participants and $250,000 in total assets is 1.6% of assets, according to the 23rd Edition of the 401k Averages Book, and is inclusive of investment management fees, fund expense ratios, 12b-1 fees, sub-transfer agent fees, contract charges, wrap and advisor fees, or any other asset based charges.

• Investment Advisor Support
• Knowledge Center

• Plan Document

• Plan Compliance

Defined Benefits Services

Mergers, aquisitions & related company analysis.

Plan Corrections

Government Audits

DWC has a long history of successfully partnering with investment advisors.

We bring decades of experience, supported by the resources to deliver comprehensive solutions for your clients. Our consultants understand the importance of your relationships and will work seamlessly alongside your team.

Articles & Insights

Fiduciary Duties & Due Dilligence

• Plan Distributions

• Retirement Plan Design

• Retirement Plan Investment Menu

• Plan Sponsor Requirements

Corporate Structure / M&A

Qualified Plan Compliance

401(k) q&a blog, visit the full blog, question of the week.

• Correction of the Quarter

In the News

• Cash Balance Corner

Downloadable Resources

Ebooks & guides.

Reference Materials

Join the 401k Experts

New eDisclosure Rules: Maybe This Whole Internet Thing is Going to Stick

401(k) vs 403(b): which is the best choice for my non-profit.

As the director of a not-for-profit organization, I’m looking at retirement plan options for our employees. The fiscal year ends June 30 th and I’d love to implement something to benefit our employees beginning with the new year.

How do I know if a 401(k) or 403(b) plan is the right plan for us?

Congratulations! Adding a retirement plan for your employees is an awesome benefit. The hard part can be making the decisions around the best plan design for your organization and the provisions that will be the easiest to maintain. To help you weigh the decision, 401(k) versus 403(b), let’s take a look at two major considerations, eligibility and annual testing, and how these different plan types come into play.

Eligibility

One of the first things to contemplate when setting up your retirement plan is what the plan’s eligibility will be. Would you like your employees to be able to begin contributing as soon as they’re hired? Or would you prefer that they wait until they’ve worked for you for a certain amount of time, say a few months or even a year? The answer to this question will help you navigate the decision tree as the rules for 403(b) plans and 401(k) plans are very different.

403(b) plans are subject to something called universal availability. This means the ability to make deferrals must be universally available to all employees immediately. So, as of day one, a plan sponsor must allow an employee in a 403(b) plan to begin making deferrals. There are a few very specific exceptions to the universal availability rule but, generally speaking, in a 403(b) plan everyone is eligible to contribute as soon as they are hired. This rule may make administration easier (no need to determine who and when someone is eligible) but it can also mean the plan participant count can grow quite quickly.

If you choose to sponsor a 401(k) plan, you can implement a more restrictive eligibility schedule. 401(k) plan sponsors can set requirements of up to one year of service (requiring at least 1,000 hours of service during the period) and attainment of age 21. If your organization experiences quick turnover of employees, you may find that having the ability to set service requirements keeps the plan “cleaner” with fewer terminated participant balances remaining in the plan over time.

Both 403(b) and 401(k) plans can implement eligibility requirements for employer contributions, including matching and nonelective contributions. Meaning, if your organization decides to provide a contribution on behalf of plan participants, you can establish service requirements like what’s available for 401(k) plan deferral provisions. This optional feature for both plan types allows your organization to focus these discretionary employer contributions on your longer-tenured staff.

The next thing to consider is the type of participants you’ll have in the plan and whether it is subject to the ADP nondiscrimination test , which can limit the contributions any highly compensated employees can make based on the average contribution rate of the non-HCEs. If the average deferral rate of the HCEs exceeds the limit set by the deferral rates of the NHCEs, the HCEs may be required to take corrective refunds from the plan.

Typically, a 401(k) plan is subject to this test, whereas a 403(b) plan is not. While there are ways for 401(k) plans to avoid this annual testing, a 403(b) plan may offer the better opportunity for maximizing deferrals if your organization has HCEs looking to contribute. Wondering about what makes a participant an HCE, we have that info for you here .

While it wasn’t always the case, despite the factors above, 403(b) and 401(k) plans offer many similar participant experiences. Annual contribution limits, withdrawal restrictions and access, as well as the ability to self-direct investments are generally the same across both plan designs. In addition, the plan sponsor requirements like maintaining a plan document and filing a Form 5500, are the same for ERISA-covered 403(b) plans and 401(k) plans. Fiduciary responsibilities apply to sponsors of either plan type.

Granted, not all employers have the option to implement a 403(b) plan. They are only available to 501(c)(3) non-profit organizations as well as certain governmental entities. If you’re unsure whether a 403(b) plan may be available to you or you’d like to drill down to the nitty-gritty on 403(b) plans, we’ve got you covered here . Even if a 403(b) plan isn’t an option for your business or organization, there are still numerous other plan types and provisions to consider. If you’re curious about those, we’ve put together a quick reference comparison chart that will help you review the different plan types that might be right for you. And, we know, reading this alone isn’t going to get you to the perfect plan; our DWC team is eager to review your business’s retirement plan needs and help you design a plan that fits like a glove.

Want a printable version of this article? Click here.  

Topics: 401(k) Plan , 403(b) , Highly Compensated Employees , Question of the Week (QOTW) , DWC , Nondiscrimination Testing , ADP/ACP Tests

Recent Post

• 401(k) Contribution Limits (8)
• 401(k) Plan (65)
• 403(b) (16)
• Acronyms (4)
• ADP/ACP Tests (24)
• Affiliated Service Groups (4)
• After-Tax Contribution (2)
• Attribution (1)
• Automatic Contribution Arrangement (5)
• Automatic Enrollment (11)
• Automatic Escalation (3)
• Beneficiary Designation (7)
• CARES Act/Coronavirus (14)
• Cash Balance (25)
• Cash Balance Contribution (14)
• Cash Balance Corner (16)
• Catch-up Contributions (1)
• Compensation (13)
• Contribution Credits (3)
• Controlled Groups (9)
• Coronavirus-Related Distributions (1)
• Corporate Structure/M&A (7)
• Correction of the Quarter (10)
• Cycle 3 Plan Restatement (5)
• Defined Benefit (15)
• Defined Contribution (19)
• Department of Labor (7)
• Deposit Deadlines (3)
• Discretionary Match (3)
• eDisclosures (5)
• Eligible Automatic Contribution Arrangement (EACA) (5)
• Employee Benefits (7)
• Employer Match Contributions (13)
• Fee Disclosure (5)
• Fidelity Bond (2)
• Fiduciary Duties and Due Diligence (8)
• Fiduciary Responsibility (19)
• Force Out (4)
• Forfeitures (11)
• Form 1099-R (3)
• Form 5330 (1)
• Form 5500 (20)
• Form 5558 (1)
• Form 8955-SSA (5)
• Form W2 (2)
• Hardship Distributions (18)
• Highly Compensated Employees (34)
• In-Service Distributions (8)
• IQPA Audit (9)
• IRS Audit (4)
• Key Employee (6)
• Last Day Rule (6)
• Late Deposits (4)
• Legislation (30)
• Long-Term, Part-Time (2)
• Mandatory Distribution (6)
• Mergers and Acquisitions (5)
• Minimum Required Contribution (1)
• Missed Deferral Opportunity (7)
• Multiple Employer Plans (MEP) (19)
• Non-Profit Organization (2)
• Nondiscrimination (5)
• Nondiscrimination Testing (22)
• One Bad Apple Rule (1)
• Operational Failure (4)
• Ownership (6)
• Partial Plan Termination (5)
• Participant Loans (12)
• Participant Notices (10)
• Permissible Withdrawal (2)
• Plan Amendment (12)
• Plan Compliance (52)
• Plan Correction (21)
• Plan Distributions (44)
• Plan Document (4)
• Plan Eligibility (19)
• Plan Fees and Expenses (8)
• Plan Restatement (6)
• Plan Sponsor Requirements (20)
• Plan Termination (7)
• Plan Year (4)
• Pooled Employer Plan (PEP) (3)
• Prior Year Testing (2)
• Profit Sharing (22)
• Prohibited Transaction (3)
• Qualified Plan (8)
• Question of the Week (QOTW) (164)
• Real Estate (3)
• Recommended Contribution (1)
• Regulations (4)
• Related Company (6)
• Required Minimum Distribution (RMD) (12)
• Retirement Plan (13)
• Retirement Plan Design (67)
• Retirement Plan Investment Menu (18)
• Rollovers (4)
• Roth Conversion (1)
• Rule of Parity (1)
• Safe Harbor (9)
• Safe Harbor 401(k) Plan (25)
• Safe Harbor Match (7)
• Safe Harbor Notice (4)
• Salary Deferral (6)
• SECURE 2.0 (12)
• SECURE Act (18)
• Self-Employed (1)
• Settlement Proceeds (1)
• SIMPLE (11)
• Solo(k) Plan (2)
• Spousal Consent (2)
• Student Loan Benefits (2)
• Successor Plan Rule (2)
• Summary Annual Report (1)
• Suspense Account (2)
• Tax Credits (5)
• Top Heavy Determination (9)
• Top Paid Group Election (3)
• Transfers (2)
• Transition Rule (1)
• True Up Contributions (5)
• Vesting (11)
• Years of Service (3)
• 401(k) Contribution Limits
• 401(k) Plan
• ADP/ACP Tests
• Affiliated Service Groups
• After-Tax Contribution
• Attribution
• Automatic Contribution Arrangement
• Automatic Enrollment
• Automatic Escalation
• Beneficiary Designation
• CARES Act/Coronavirus
• Cash Balance
• Cash Balance Contribution
• Catch-up Contributions
• Compensation
• Contribution Credits
• Controlled Groups
• Coronavirus-Related Distributions
• Corporate Structure/M&A
• Cycle 3 Plan Restatement
• Defined Benefit
• Defined Contribution
• Department of Labor
• Deposit Deadlines
• Discretionary Match
• eDisclosures
• Eligible Automatic Contribution Arrangement (EACA)
• Employee Benefits
• Employer Match Contributions
• Fee Disclosure
• Fidelity Bond
• Fiduciary Duties and Due Diligence
• Fiduciary Responsibility
• Forfeitures
• Form 1099-R
• Form 8955-SSA
• Hardship Distributions
• Highly Compensated Employees
• In-Service Distributions
• Key Employee
• Last Day Rule
• Late Deposits
• Legislation
• Long-Term, Part-Time
• Mandatory Distribution
• Mergers and Acquisitions
• Minimum Required Contribution
• Missed Deferral Opportunity
• Multiple Employer Plans (MEP)
• Non-Profit Organization
• Nondiscrimination
• Nondiscrimination Testing
• One Bad Apple Rule
• Operational Failure
• Partial Plan Termination
• Participant Loans
• Participant Notices
• Permissible Withdrawal
• Plan Amendment
• Plan Correction
• Plan Eligibility
• Plan Fees and Expenses
• Plan Restatement
• Plan Termination
• Pooled Employer Plan (PEP)
• Prior Year Testing
• Profit Sharing
• Prohibited Transaction
• Qualified Plan
• Question of the Week (QOTW)
• Real Estate
• Recommended Contribution
• Regulations
• Related Company
• Required Minimum Distribution (RMD)
• Retirement Plan
• Roth Conversion
• Rule of Parity
• Safe Harbor
• Safe Harbor 401(k) Plan
• Safe Harbor Match
• Safe Harbor Notice
• Salary Deferral
• Self-Employed
• Settlement Proceeds
• Solo(k) Plan
• Spousal Consent
• Student Loan Benefits
• Successor Plan Rule
• Summary Annual Report
• Suspense Account
• Tax Credits
• Top Heavy Determination
• Top Paid Group Election
• Transition Rule
• True Up Contributions
• Years of Service

The views expressed in this blog are those of the authors and do not necessarily represent the views of any other person or organization. All content is provided for informational purposes only and is not intended to be tax or legal advice.

Only the Best Retirement Industry Content

• Phone: 651.204.2600
• Privacy Policy

As Featured In

Sign up to receive insights from DWC

Choosing a Retirement Plan for Your Not-for-Profit

CBM Contact: Julia Lafferty, CPA

Traditionally, 403(b) plans have been the qualified retirement plan of choice for not-for-profits . These plans were established for the exclusive benefit of tax-exempt organizations. However, a not-for-profit now have other options as well. Even if you continue to prefer a 403(b) plan , as many nonprofits still do, it pays to review and weigh the benefits of other types of accounts.

A not-for-profit generally may choose from the following four plans:

1. 403(b). The 403(b) plan is comparable to the better-known 401(k) plan. Contributions are made on a pretax basis through paycheck deductions. They can grow and compound tax-free until the account holder makes withdrawals. Distributions taken by participants age 59½ and older typically are taxed at ordinary income rates. Your organization may also choose to offer employees a Roth-type 403(b) plan. With these plans, contributions are taxable, but distributions are tax-free.

For 2022, the individual limit on 403(b) contributions is $20,500 ($27,000 for those age 50 or older). Furthermore, staffers who have worked for your organization for at least 15 years can contribute an additional $3,000 a year for five years if they’ve contributed an average of less than $5,000 per year previously. This specific “catch-up” contribution is unique to 403(b) plans.

Your nonprofit can also make contributions to 403(b) accounts. Loans and hardship distributions may be possible if certain requirements are met.

2. 401(k). This for-profit standard can also be used by not-for-profit organizations. As with 403(b) plans, participants may contribute up to $20,500 ($27,000 for those age 50 or older) in 2022. Participant accounts may also receive matching contributions from employers up to a certain percentage of compensation.

As with 403(b) plans, 401(k) contributions can grow tax-deferred until they are withdrawn. Distributions by participants age 59½ and older are taxed at ordinary income rates. And a 401(k) plan can be set up as a Roth-type account that accepts after-tax dollars but provides tax-free withdrawals. Loans and hardship distributions may be permitted if certain requirements are met.

3. Savings Incentive Match Plan for Employees (SIMPLE). As the name implies, SIMPLE plans are easy to administer and exempt from many of the strict testing and reporting requirements that apply to 401(k) and 403(b) plans. However, SIMPLEs rely on a relatively rigid structure. For example, these plans don’t permit loans or hardship distributions. Nor can SIMPLE plans be set up as Roth-type accounts.

For 2022, SIMPLE plan participants can contribute up to $14,000 ($17,000 for those age 50 or older). A 10% early withdrawal penalty applies to most qualified plan distributions (for example, from 403(b) and 401(k) accounts) made before age 59½, unless a special exception applies. However, the penalty is 25% for early distributions from a SIMPLE plan if it’s taken within two years of establishing the account.

4. Payroll deduction IRAs. These are even simpler than SIMPLEs. Employees establish IRAs for themselves, and your organization makes contributions on their behalf with payroll deductions. Of course, employees could set up their own automatic investment plan for an IRA. But by formalizing the process, you encourage staffers who might not otherwise save for retirement to start and maintain a good saving habit.

Compare Pros and Cons

Other options used in the for-profit sector, such as defined benefit plans, are available to a not-for-profit. However, they’re not common. And, in fact, most nonprofits choose 403(b) plans. The following advantages weigh in their favor:

No ERISA requirements. Like government agencies and school systems, most nonprofits don’t have to follow Employee Retirement Income Security Act (ERISA) rules, so administration tends to be less burdensome. For example, administrators of most 403(b) plans aren’t required to perform annual nondiscrimination testing. This can also benefit highly compensated employees.

Note: Even nonprofits that don’t automatically qualify for non-ERISA status may be able to avoid ERISA rules if they don’t provide employer contributions and have only “limited involvement” in the plan.

Additional catch-up provision. The $3,000 catch-up provision can help beef up the nest eggs of staffers who haven’t steadily contributed to a retirement account. Employees of the following types of organizations are eligible to make these contributions:

• Public school systems,
• Home health service agencies,
• Health and welfare service agencies,
• Religious congregations, and
• Conventions or associations of churches.

Broad eligibility. Generally, not-for-profit employees can participate in an employer’s 403(b) plan immediately. Certain restrictions usually apply to 401(k) eligibility — for example, workers must be at least age 21 to open an account.

On the other hand, 401(k)s have certain benefits over 403(b)s. For one, there are many more 401(k) plan providers to choose from. Typically, this competition results in lower administrative fees. Participants also generally have greater investment options with a 401(k), such as individual stocks, bonds, low-expense mutual funds and exchange traded funds.

Growing and Evolving

Even if you currently offer employees a 403(b) plan, at least consider other options as your organization grows and evolves. You might want to survey workers to learn what they value in a retirement plan — and what they feel your current plans lacks. Also consult professional financial and benefits advisors who can help you evaluate features and costs.

Please contact Julia Lafferty via our online contact form for more information.

Councilor, Buchanan & Mitchell (CBM) is a professional services firm delivering tax, accounting and business advisory expertise throughout the Mid-Atlantic region from offices in Bethesda, MD  and  Washington, DC .   

Posted in: Not-for-Profits , Retirement Planning

" * " indicates required fields

Related Posts

The Impact of Significant Life Transitions on Tax Planning (Part I) 

IRS Extends Relief For Inherited IRAs

The Impact of Uniform Guidance Revisions on Organizations That Receive Federal Funding

• Next »

Subscribe Now

You may subscribe to multiple newsletters and alerts using this form. (You may minimize this form to review the list of alerts and newsletters available to you. You may restore the form when you are ready.)

JOIN OUR COMMUNITY!

Subscribe to cbm’s professional insights..

Featured Resources

A 'No-Sweat' 401(k): Simplifying Savings with Payroll Integration

How Carbon Collective Went From 0 to 80+ Retirement Plans with Vestwell

Is A Multiple Employer Plan (MEP) Right For Your Retirement Benefit?

Student Loans: Aligning Workplace Benefits With Employee Priorities

Calculate your potential savings with our tax credit calculator

State Retirement Program Mandates: Everything you need to know

403(b) Plans: Setting Up a Retirement Plan for Your Nonprofit Organization

Last Updated: March 18, 2024

Both 401(k) and 403(b) plans are employer-sponsored retirement plans, but there are key differences between the two plans that are important to highlight.

Simply put, a 403(b) plan is a type of retirement plan that originates with and is only allowed to be offered by nonprofits. This includes 501(c)(3) organizations, religious institutions, and government entities such as public schools. Like any other retirement plan, it’s a way for employees to save for retirement in a tax-advantaged way.

In this article, we’ll cover the key attributes of 403(b) retirement plans, including their advantages and disadvantages and how they compare to 401(k) plans.

What Is a 403(b) plan?

A 403(b) retirement plan is a type of tax-advantaged retirement savings account available to employees of certain tax-exempt organizations, such as schools, hospitals, and nonprofit organizations. Employees can make contributions from their salary on a pre-tax or Roth (after-tax) basis:

• Pre-tax or "traditional" contributions are deducted from employees' salaries before taxes are applied, reducing their taxable income. The funds in a pre-tax 403(b) plan grow tax-free until they are withdrawn during retirement, at which point they are subject to income tax.
• Roth contributions are deducted from their salary after taxes are applied; however, in most cases, these funds are withdrawn tax-free during retirement.

How Does a 403(b) Plan Work?

A 403(b) plan works much like a 401(k) plan. Once an employee selects the amount they would like to contribute to their 403(b) account, their employer’s payroll system deducts that percentage or dollar amount from each paycheck during the payroll period.

Additionally, some plans offer an “employer match,” which means the employer will contribute to their employees’ accounts based on how much they contribute, up to certain limits established by the IRS or their plan document. For example, if a plan has a match up to 4% of the employee’s salary and an employee is contributing 3% of their salary, then the employer will also contribute 3%. If the employee contributes 5%, then the employer contributes 4%.

Finally, some plans will offer non-elective contributions. These are provided, usually in a pro-rata amount (such as 4% of annual salary, for example) to all employees, whether they contribute to the plan or not.

When considering a 403(b) plan, employers should consider the needs of their particular workforce before deciding on a plan. Creating an employee benefits survey can be a good way to determine which type of retirement plan your employee base would prefer.

How Much Can an Employee Defer Into a 403(b) Plan?

The deferral limits for a 403(b) plan are typically adjusted for inflation each year. For 2024, an employee can defer up to $23,000 of their pay into a 403(b) or 401(k) plan.

Additionally, if permitted by the 403(b) plan document, employees who are age 50 or over at the end of the calendar year can also make catch-up contributions of $7,500 in 2024 beyond the basic limit on elective deferrals, for a total of $30,500.

What Are the Advantages and Disadvantages of a 403(b) Plan?

Advantages of a 403(b) plan.

• Recruit & retain: Offering a 403(b) plan gives nonprofits the ability to compete with private sector businesses for the talent they need to make their mission statements a reality.
• Tax benefits: 403(b) plans allow you to either lower your taxable income today with pre-tax contributions or enjoy tax-free withdrawals in retirement by making Roth contributions.
• Simplified compliance: Because 403(b)s are created for the nonprofit sector, they have fewer compliance regulations than a 401(k) has. This presents a streamlined option as there is less administrative work at the end of the year.

Disadvantages of a 403(b) Plan

• Brand recognition: While the laws governing 401(k) and 403(b) plans have made them more similar, the 403(b) remains a far lesser-recognized plan offering. Particularly for organizations seeking workers from the private sector, they may have to explain that the plans are remarkably similar in savings, benefits, and features.
• Universal availability: A 403(b) plan must generally be offered to all employees in the organization. This means that if you are considering employer contributions, you should consider whether they will be offered to all employees. This differs from 401(k) plans that can exclude certain employees based on certain criteria.

Is a 403(b) Plan Right for Your Nonprofit?

A 403(b) plan is a powerful tool for nonprofits to attract and retain talent while allowing their employees to save for retirement at tax-advantaged rates. Additionally, they are easier to operate from an administrative perspective relative to a 401(k) plan.

When offering a 403(b) plan, employers should understand their objectives, know the retirement trends within their industry, and invest in employee communication and education to show their employees the benefits of their retirement plan. The good news is, you don’t have to do it alone.

Vestwell is a digital retirement plan platform that makes it easier for you to offer and administer an employer-sponsored 401(k) or 403(b) plan. By combining technology with user-first design and offering 3(16) plan administration services , Vestwell can help you take the hassle out of setting up and administering a 403(b) plan.

Interested in getting started?

Recent posts.

Scalable Solutions: How Benetech Expanded Their Business as a Vestwell Flex Partner

Community Care: Empowering Employees With Vestwell’s Retirement Plan

Saving for Education: A Guide to 529 Plans

Learn more about vestwell's modern savings solutions..

To view this fund's performance and other information, log in to NetBenefits.

register on NetBenefits

I want to  open a new retirement account

Enter your username

Enter your password

Remember Me

Security Notice

Plan Details

Non-Profit Organization Retirement Plan

A 403(b) plan allows eligible employees to save on a tax-deferred basis through salary deduction and, if applicable enjoy matching contributions from the employer.

• To learn more before you enroll, see Plan Basics below.

Explore Plan Basics

Learn the plan basics - including eligibility - of each retirement savings plan offered by your employer.

Enrollment - shows details. Click to open.

After establishing your account with Fidelity your enrollment becomes effective once you contact your Benefits Office and indicate how much you'd like to contribute, also known as the deferral.

To Enroll Now:

• Obtain your 5 digit plan number, contact Fidelity at (800) 343-0860 or your benefits office.
• Choose your Investments. Review the investment options available to you.
• Decide how much to invest. Explore contribution limits and learn how much you can contribute to your plan . After you enroll, contact your Benefits Office to set up contributions.
• Pick your beneficiary. Download the Beneficiary Form and complete the information requested, then mail it to Fidelity Investments at the address listed on the form.
• Enrolling is fast and easy: To enroll now CLICK HERE .

Contributions - shows details. Click to open.

Typically, you can contribute between 1% and 100% of your eligible pay, up to the annual IRS dollar limits.

For any plan specific restrictions or additional contribution questions contact your Benefits Office.

"Catch-Up" Contributions - shows details. Click to open.

If you are age 50 or older, you have the ability to make additional contributions to your plan, up to the current IRS dollar limits. View the limits here: IRS DOLLAR LIMITS

Vesting - shows details. Click to open.

When you are "vested" in your savings, it effectively means the money is yours to keep. You are always 100% vested in all contributions you make to your plan, as well as any earnings on them.

Beneficiaries - shows details. Click to open.

Your beneficiary or beneficiaries will inherit your account in the event of your death. You should consider identifying a beneficiary when you enroll in your plan, and updating the information if you experience a life-changing event such as a marriage, divorce, birth of a child, or death in the family.

Withdrawals - shows details. Click to open.

You are generally allowed to withdraw money from your plan when you leave your employer, retire or become permanently disabled. Also you may be eligible for a distribution if you have a financial hardship as defined by your plan. Withdrawals may be subject to income taxes and, if they occur prior to you becoming age 59�, a 10% early withdrawal tax penalty.

For more information, call the Fidelity Retirement Services Center at 1-800-343-0860.

Moving money - shows details. Click to open.

If you have retirement savings in another employer's plan or in an IRA, consolidating accounts may help make it easier to manage your savings but there are several options. Be sure to consider all your available options and the applicable fees and features of each before moving your retirement assets.

If you're not sure about the best option for you, call a Fidelity representative today at 800-343-0860.�They can explain each option in greater detail so you can make the best choice for your specific needs.

Account access - shows details. Click to open.

Online, on the phone, or in person, you have access to your account the way you want it. Log in online to NetBenefits � virtually 24/7 or call Fidelity at 1-800-343-0860 to speak with a representative or use the automated voice response system.

Make Updates to My Account

Change my contributions.

A little extra saved today could make a big difference in retirement. Login now.

Change My Investments

Update my fund choices or provider to help meet my financial goals. Login now.

View All Tools & Resources

Get quick answers or help enrolling.

Before investing, consider the investment objectives, risks, charges and expenses of the fund or annuity and its investment options.�Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

** The current yield of the money market mutual fund listed above reflects the current earnings of the fund, while the total return refers to a specific past holding period.

*** The yield without applicable waivers or reimbursements, whenever Fidelity is subsidizing all or a portion of the fund's expenses as of the current reporting period. Absent such waivers or reimbursements, the returns would have been lower. Waivers and/or reimbursements may be discontinued any time.

Investing involves risk, including risk of loss.

Footnotes 1, 2, 3 and 4 below pertain to the performance tables located on the Investment Options�tab:

1 Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal.

2 Total returns are historical and include change in share price and reinvestment of dividends and capital gains, if any. These figures do not include the effect of sales charges, if any, as these fees are waived for contributions made through your retirement plan. If sales charges were included, returns would have been lower. Life of fund figures are from the inception date to the period shown. For unitized funds, the inception date shown may be that of the fund's underlying investment option. For non-mutual fund pools and trusts whose strategies may be offered to multiple clients, and whose returns may be based on a composite, the inception date shown may be the beginning date of the composite's returns.

3 In general, the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so holding them until maturity to avoid losses caused by price volatility is not possible.

4 Target Date Funds are an asset mix of stocks, bonds and other investments that automatically becomes more conservative as the fund approaches its target retirement date and beyond. Principal invested is not guaranteed.

Fidelity Brokerage Services LLC, Member NYSE, SIPC , 900 Salem Street, Smithfield, RI 02917

�2016-2024 FMR LLC.

All rights reserved.

• Terms of Use |

Best Retirement Plans for Employees

Best retirement plans for self-employed individuals.

• Best Individual Retirement Accounts (IRAs)

Other Retirement Savings Options

• Why You Should Trust Us

Best Retirement Plans for 2024: Choosing the Right Path for Your Future

Affiliate links for the products on this page are from partners that compensate us and terms apply to offers listed (see our advertiser disclosure with our list of partners for more details). However, our opinions are our own. See how we rate products and services to help you make smart decisions with your money.

Why Start Saving for Retirement Now?

Financial experts all agree: The sooner you start saving, the better. Retirement savings accounts offer long-term wealth-building features like compounding, tax advantages, and retirement-focused investment strategies. 

Compound interest allows you to earn interest on your interest. The longer your money grows, the faster it accumulates and the closer you are to achieving a financially secure retirement. Contributing a little here and there is better than not contributing at all. 

Moreover, retirement plans like IRAs and 401(k)s offer tax benefits. You can contribute pre-tax money to lower your taxable income today. Or you can contribute after-tax money for tax-free growth and withdrawals. 

Here are Business Insider's editors' top picks for the best retirement plans in 2024. 

401(k) Plans

401(k)s are popular retirement savings plans offered by for-profit companies. Employees can open a traditional 401(k) or a Roth 401(k). Traditional 401(k)s grow with pre-tax dollars, but Roth 401(k)s rely on after-tax contributions, just like with IRAs.

Employees can contribute up to $23,000 in 2024, and individuals age 50 and older can contribute additional "catch-up" contributions of $7,500. 

Many 401(k)s offer employer-matching contributions. Your employer matches up to a certain limit for every dollar you put into your account. This is generally considered "free money" toward your retirement. For instance, if you make $50,000 annually, and your company matches 50% of your 401(k) contributions up to 5% of your salary, you would need to contribute $2,500 into your account to receive the full match amount. Your employer would then contribute an additional $1,250 a year.

403(b) Plans

403(b)s, or tax-sheltered annuities, are retirement plans for public school employees, tax-exempt organizations, churches, and other nonprofit companies. Similar to a 401(k), 403(b)s may offer the benefit of an employer match. You can contribute pre-tax or after-tax money. 

If you're under 50, you can contribute up to $23,000 in 2024. Employees 50 and up can contribute an additional $7,500. In addition to pre-tax and after-tax contributions, you can contribute to your 403(b) by allowing your employer to withhold money from your paycheck to deposit into the account.

Thrift Savings Plans

Thrift savings plans (TSPs) are retirement accounts for federal and uniformed services employees. Like 401(k)s, these plans let you contribute pre- or after-tax dollars. But, unlike many 401(k) employer matches, most TSPs offer a full 5% contribution match. Your employer will match your contributions up to 5% of your salary.

The annual contribution limit for 2024 is $23,000. The catch-up contribution limit is $7,500. 

457(b) plans are retirement savings accounts offered by certain state and local governments and tax-exempt organizations. Like 403(b)s, you can contribute to your 457(b) plan by asking your employer to withhold a portion of your paycheck and deposit it in your retirement plan. Some employers allow you to make Roth contributions. 

The annual contribution limit for 2024 is $23,000. The catch-up contribution limit is $7,500. Folks 50 and older can contribute up to the annual additions limit, currently $69,000. 

Pension Plans

Pension plans are retirement plans fully funded by your employer, who are required to make regular contributions toward your retirement. However, depending on the plan's terms, you may not have control over how the money is invested. 

There are two main types of pension plans: the defined contribution plan and the defined benefit plan. 401(k)s are technically considered defined-contribution pension plans, and your employer is not responsible if your investments perform poorly.

Traditional pension plans are defined benefit plans (plans with fixed, pre-established benefits). Employers are liable to provide retirement funds for a certain dollar amount, calculated based on employee earnings and employment years.

Solo 401(k)

Solo 401(k)s are an option for business owners who work for themselves and have no employees. They can contribute as both an employer and employee (and spouses of business owners may be able to contribute as well), meaning they can contribute twice as much. You can make pre- or post-tax (Roth) contributions to your account. 

As an employee, you can defer up to $23,000 of your self-employed income in 2024. If you're 50 or older, you can make an additional $7,500 catch-up contribution. As an employer, you can contribute up to $23,000, plus the catch-up contribution if you're 50 or older. The total contribution limit is $76,500. 

Simplified employee pension (SEP) IRAs are retirement vehicles managed by small businesses or self-employed individuals. According to the IRS, employees (including self-employed individuals) are eligible if they are 21 years old, have worked for the employer for at least three of the last five years, and have made a minimum of $750. 

SEP IRAs also require that all contributions to the plan are 100% vested. This means that each employee holds immediate and complete ownership over all contributions to their account, including any employer match. You can contribute up to $69,000 or 25% of your employee's compensation 2024.

Vesting protects employees against financial loss. For instance, according to the IRS, an employer can forfeit amounts of an employee's account balance that isn't fully vested if that employee hasn't worked more than 500 hours in a year for five years.

SIMPLE IRAs are for self-employed individuals or small businesses with 100 employees or less. According to the IRS, these retirement plans require employers to match each employee's contributions on a dollar-for-dollar basis up to 3% of the employee's salary.

To qualify, employees (and self-employed individuals) must have made at least $5,000 in the last two years and expect to receive that amount during the current year. But once you meet this requirement, you'll be 100% vested in all your SIMPLE IRA's earnings, meaning you have immediate ownership over your and your employer's contributions. 

Employees can contribute up to $16,000 in 2024. You can also add a catch-up contribution of $3,500 if you're 50 or older.

Payroll Deduction IRAs

Small businesses and self-employed people can set up employee IRAs even simpler. With payroll deduction IRAs, businesses delegate most of the hard work to banks, insurance companies, and other financial institutions.

After determining which institutions their employer has partnered with, employees can set up payroll deductions with those institutions to fund their IRAs. These accounts are generally best for employees who don't have access to other employer-sponsored retirement plans like 401(k)s and 457(b)s.

For 2024, you can contribute up to $7,000 in annual contributions and up to $1,000 in annual catch-up contributions for employees aged 50 or older. 

Best Individual Retirement Arrangements (IRAs)

One of the most appealing components of independent retirement plans like IRAs is that you can open one as long as you've got taxable (earned) income. And even if you have an employer-sponsored retirement account, you can usually set up a traditional IRA, Roth IRA, and other independent retirement accounts.

Traditional IRA

Traditional IRAs let you save with pre-tax contributions toward your retirement savings. You'll pay tax when you withdraw during retirement. Traditional IRAs are recommended for higher-income workers who prefer to receive a tax deduction benefit now rather than later.

The 2024 contribution limit is $7,000, with up to $1,000 in catch-up contributions.

Roth IRAs are funded by after-tax dollars, meaning you pay taxes on your contributions now and make tax-free withdrawals later. As long as you're eligible, experts recommend Roth IRAs for early-career workers who expect to be in a higher tax bracket when they withdraw. Traditional and Roth IRAs share the same contribution limits: $7,000 in 2024, with up to $1,000 in catch-up contributions.

If you want to open one of the best Roth IRAs , single filers can only contribute the maximum amount in 2024 if their modified adjusted gross income (MAGI) is less than $146,000. Married couples must earn less than $230,000 annually to contribute the full amount in 2024. You can still contribute less if you earn a little more, though. 

You can find your MAGI by calculating your gross (before tax) income and subtracting any tax deductions from that amount to get your adjusted gross income (AGI), then adding back certain allowable deductions.

Spousal IRAs

There's also an option for married couples where one spouse doesn't earn taxable income. Spousal IRAs allow both spouses to contribute to a separate IRA as long as one spouse is employed and earns taxable income. This account allows the nonworking spouse to fund their own IRA. 

In 2024, each can contribute $7,000 (or $8,000 if they are 50 or older) for up to $16,000 annually.

Rollover IRAs

The best rollover IRAs let you convert your existing employer-sponsored retirement plan into an IRA, something experts generally recommend doing when you leave a job for a few reasons: primarily because you have more control over the investment options in an IRA than in a 401(k), and also because it's easier to consolidate your accounts for record-keeping.

Many online brokerages and financial institutions offer rollover IRAs; some will even pay you to transfer your employer-sponsored plan to an IRA.

Self-Directed IRAs (SDIRAs)

You can fund a self-directed IRA using traditional or Roth contributions ($7,000 and contribution limits in 2024, plus another $1,000 for catch-up contributions). But the difference between these accounts is mainly one of account custody and investment choices.

Unlike traditional and Roth IRAs, the IRS requires that all SDIRAs have a certified custodian or trustee who manages the account. These third parties handle the setup process and administrative duties of the IRA (e.g., executing transactions and assisting with account maintenance).

SDIRAs also give investors access to a wider range of investment options. With traditional and Roth IRAs, you're limited to mutual funds, ETFs, stocks, and other traditional investments. But, SDIRAs allow you to invest in alternative assets like real estate, precious metals, and cryptocurrencies .

Nondeductible IRAs

Nondeductible IRAs are for people who earn too much to get the full tax benefits of an IRA. Contributions for these accounts aren't tax deductible, meaning you'll fund your IRA with post-tax dollars like a Roth IRA. The difference is that you'll still have to pay taxes on any earnings or interest from the account once you withdraw at age 59 1/2.

Annuities are investment vehicles purchased from insurance companies at a premium. You'll receive periodic payouts during retirement once you purchase an annuity using pre-tax or after-tax dollars. Annuities offer a reliable income stream for retirees and reassurance they won't outlive their savings. 

The funds in an annuity can also be invested. Before you start receiving payouts, the investment gains grow tax-free, but you'll still be liable to pay income tax. Plus, annuities have limited liquidity and high fees that may diminish potential gains. 

Health Savings Accounts (HSAs)

Health Savings Accounts (HSAs) are savings accounts designed to cover medical expenses but can double as retirement savings. Once you're 65, you can withdraw the funds from your HSA penalty-free for non-medical expenses. 

While an HSA isn't a great main retirement savings vehicle, it can be a great addition to a different long-term savings account. In addition to penalty-free withdrawals on qualifying expenses, HSAs are funded with pre-tax dollars and grow-tax-free. But you'll still be subject to income tax. 

In 2024, you can contribute up to $4,150 for self-coverage and $8,300 for family coverage. Folks 55 and older can contribute an additional $1,000 catch-up contribution. 

Choosing the Best Retirement Plan for You

If you're not a small-business owner or self-employed, the best retirement plan for you usually depends on your type of employer, marital status, and short- and long-term savings goals. 

However, for most employer-sponsored retirement accounts, you can decide whether to make pre-tax or post-tax (Roth) contributions to your account. Roth contributions are best for those who expect to pay more in taxes as they age, but you should consider pre-tax contributions if you don't mind paying taxes when you withdraw money from your account in retirement.

You can boost your retirement savings even more by opening a separate IRA in addition to your employer-sponsored plan (you can still save toward retirement with an IRA if you're unemployed).

FAQs About Retirement Plans

Your best retirement option depends on your income, employer, financial situation, time horizon, and goals. If you can access a retirement savings account through your employer, especially a pension or 401(k) plan, that is likely your best option. If not, a traditional or Roth IRA offers tax advantages, compounding power, and flexible investment options.

A traditional or Roth IRA may be a better retirement saving account than a 401(k) due to the low fees and flexibility. Although 401(k)s come with great benefits like an employer match, they have high fees that can eat away at gains. An IRA may be a better option if your employer is not covering those fees. 

A Roth IRA may be the better option, depending on your situation. In most cases, a 401(k) is the stronger retirement account due to the convenience of automatic payroll deduction and the additional benefit of an employer match. However, Roth IRAs can double as emergency funds. A Roth IRA may be better if you're looking for increased flexibility and Roth tax benefits. 

Why You Should Trust Us: Our Expert Panel For The Best Retirement Plans

We interviewed the following investing experts to see what they had to say about retirement savings plans. 

• Sandra Cho , RIA, wealth manager, and CEO of Pointwealth Capital Management
• Tessa Campbell , Investment and retirement reporter at Personal Finance Insider

What are the advantages/disadvantages of investing in a retirement plan?

Sandra Cho:

"The main advantage is the tax implications of the account. Depending on the account, taxes will either be deferred or not included at all. For employer-sponsored retirement plans like 401(k)s, contributions to the plan are made with pre-tax funds, and the account grows tax-deferred. Taxes are then owed upon withdrawal.

"Roth IRAs, on the other hand, are contributed to with post-tax funds but grow tax-free. Both should be included in an investor's portfolio. Another advantage is that 401(k)s often have an employer matching component. That is, an employer will match your contributions up to a certain point (usually around 3% of your salary). 

"The disadvantage is that retirement accounts have a max contribution limit. Another disadvantage is that these funds cannot be used until age 59 1/2. For younger investors, that can be a long time wait."

Tessa Campbell: 

"Tax benefits and compound interest are two of the major advantages of contribution to a retirement savings plan like a 401(k) or individual IRA. Depending on the kind of plan you open (traditional or Roth), you can benefit from contributions after- or post-tax dollars. In addition, some 401(k) plans are eligible for employer-sponsored matches, which are essentially free money.

"The disadvantage of a retirement plan is that you won't be able to access the funds in your account penalty-free until you're at least 59 1/2 years old. Unless there are no other options, early withdraws from a retirement savings plan isn't advised."

Who should consider opening a retirement plan?

"Every individual should be investing through a retirement plan if they have the financial capability to. At the minimum, investors should try to contribute up to the matching amount for their 401(k) and the maximum amount for their Roth IRA. The growth in these funds compounds over time, helping to enhance the long-term return."

Tessa Campbell:

"I can't think of a single person that wouldn't benefit from a retirement savings plan, other than maybe someone that is already well into retirement. Although some younger individuals don't feel the need to start contributing quite yet, it's actually better to open an account as soon as possible and take advantage of compound interest growth capabilities."

Is there any advice you'd offer someone who's considering opening a retirement plan?

"I would advise them to work with a financial advisor or trusted professional. This will give them insight into where they should be investing their money, whether that be a 401(k), Roth IRA, or another vehicle. There are plenty of people and sources out there who provide important information and can help you create a strong financial future."

"Don't contribute huge portions of your salary if it doesn't make sense with your budget. While contributing to a retirement savings plan is important, you must still afford your monthly expenses and pay down an existing debt. If you're having trouble establishing a reasonable budget, consult a financial advisor or planner for professional help."

• Credit cards
• Investing apps
• Retirement savings
• Cryptocurrency
• The stock market
• Retail investing

• Main content

Watch CBS News

What would happen if Biden stepped aside from the 2024 presidential race?

By Kathryn Watson

June 28, 2024 / 5:32 PM EDT / CBS News

President Biden's lackluster debate performance Thursday night, marked by a raspy voice , gaping facial expressions, rambling answers on key questions and a perceived failure to refute several lies from former President Donald Trump, has fueled concern among many Democrats in Washington and sparked some discussion about whether there's a way to replace him on the Democratic ticket in the 2024 presidential election. 

Biden campaign spokesperson Mia Ehrenberg, asked if the president would step aside after his debate performance, replied, "Absolutely not." Asked if there are conversations about Mr. Biden stepping aside, campaign spokesman Michael Tyler said, "There are no conversations about that whatsoever."

And a newly re-energized Mr. Biden showed no sign of backing away when he spoke at a campaign rally in North Carolina the following day. "I don't debate as well as I used to," he acknowledged, but added, "I know how to get things done. And I know, like millions of Americans know, when you get knocked down, you get back up."

Whether the 81-year-old presumptive Democratic nominee should be replaced is a question for Democrats. How that process would work in accordance with Democratic National Committee rules is another. 

Here's what the process could look like, according to experts and DNC rules. 

Biden would have to step aside voluntarily 

The president couldn't be forced to step down from the race, election law and process experts agree. It's something he would have to do voluntarily. Mr. Biden possesses nearly all of the delegates from the primary process and most states have already completed their primaries.

"This is all premised on Biden himself agreeing to do this," said John Fortier, a senior fellow at the American Enterprise Institute who studies the Electoral College process and continuity of government. 

Replacing a party nominee like Mr. Biden is "really hard and unlikely to happen," Fortier said. 

"I don't think it's going to happen because there are all sorts of reasons why it's difficult," he said. 

The timing of any replacement of a major party's nominee 

If Mr. Biden were to step aside, that would almost certainly happen "before or during the convention," Fortier said. 

Stepping aside before the Democratic convention is legally easy but politically difficult, said Derek Muller, a law professor at the University of Notre Dame who specializes in election law. 

"It's politically messy before the convention but it's not legally messy," Muller said. There is no legal impediment to his stepping aside as the presumptive Democratic nominee.

Biden would likely have significant influence on his successor if he were to step aside before the convention

If Mr. Biden were to step aside before the convention, which begins on Aug. 19 in Chicago, he would likely have significant influence on the Democratic Party's choice of who would take his place on the ticket. The most likely candidate would be Vice President Kamala Harris, Muller and Fortier agree. 

"He could negotiate of course beforehand with people to try to get a common front," Fortier said. "By far the most likely outcome is that it would go to Kamala Harris."

Delegates are loyal party people, and Fortier said he suspects they "would be able to rally the troops" around one candidate. 

"I think Harris would be the default option because she is the vice president and is the presumptive vice presidential nominee," Muller said. 

If Harris were to become the presidential nominee before the convention, she would be able to pick her VP replacement, perhaps another big-name Democrat who performed well in an open convention. 

But it wouldn't have to be Harris.

A contested convention?

At this point, the Democratic National Committee is expected to hold a virtual roll call at some point around a week and a half before the convention, by Aug. 7, to formally nominate Mr. Biden and Harris, in order to meet a ballot certification deadline in Ohio on that date.

The convention is scheduled to begin Aug. 19 in Chicago, but an Ohio law requires that presidential candidates formally be nominated 90 days before Election Day. 

Because of the virtual roll call, "I don't know what that looks like in the event that there's going to be a contested convention," Muller said. 

If Mr. Biden did step aside and Democrats were unclear on who the nominee should be, they could decide to jettison the virtual roll call and cede Ohio to Trump, in order to give candidates a little longer to prepare their pitches for the convention.

DNC rules say delegates "elected to the national convention pledged to a presidential candidate shall in all good conscience reflect the sentiments of those who elected them."

Fortier says this means delegates must vote for Mr. Biden on the first ballot. 

"The delegates are bound on the first vote, and Biden would essentially decline or release them, and then we move onto the second round where everybody is uncommitted," he said, if Mr. Biden steps aside. 

Muller said there could be some room for interpretation, and if Democrats were to coalesce around a new candidate ahead of the convention, they might be able to vote for someone other than Mr. Biden. 

"I think there would be a strong incentive for people to not vote for Mr. Biden, but to show strength for some other candidate."

If a first ballot is inconclusive, so-called superdelegates — party leaders and elected officials in the party — could vote in subsequent ballots. And delegates would continue to vote until a nominee is secured. That could be a lengthy process, depending on how united or divided delegates are. 

If Democrats don't throw their support to one candidate, it could get messy. 

Past convention fights

Convention fights can be long and grueling. The 1924 Democratic National Convention took a record 103 ballots to nominate presidential nominee John W. Davis and vice presidential nominee Charles W. Bryan, who went on to lose in November. 

In 1968, Robert Kennedy — father of current independent candidate Robert F. Kennedy Jr. — jumped in the race late, after President Lyndon Johnson announced in late March he wouldn't seek reelection. Kennedy was on track to win more delegates than anti-war candidate Sen. Eugene McCarthy when he was gunned down just after his speech following his victory in the California primary. 

Instead of nominating an existing candidate, the Democratic Party chose then-Vice President Hubert Humphrey, Johnson's pick, at the convention in Chicago. Humphrey lost that November to Richard Nixon. 

If Democrats held a contested convention today, presidential hopefuls would go and make their pitch to the state delegations. 

But again, Fortier said replacing the top of the ticket is "really hard and unlikely to happen." 

• Democratic Party
• 2024 Elections

Kathryn Watson is a politics reporter for CBS News Digital, based in Washington, D.C.

More from CBS News

Biden campaign provided a list of approved questions for 2 radio interviews

Biden defies calls to drop out: "Completely ruling that out"

Biden tells ABC News his debate was a "bad episode," says he was "exhausted"

Poll: Trump gets edge over Biden nationally, across battlegrounds after debate

Human Subjects Office

Medical terms in lay language.

Please use these descriptions in place of medical jargon in consent documents, recruitment materials and other study documents. Note: These terms are not the only acceptable plain language alternatives for these vocabulary words.

This glossary of terms is derived from a list copyrighted by the University of Kentucky, Office of Research Integrity (1990).

For clinical research-specific definitions, see also the Clinical Research Glossary developed by the Multi-Regional Clinical Trials (MRCT) Center of Brigham and Women’s Hospital and Harvard  and the Clinical Data Interchange Standards Consortium (CDISC) .

Alternative Lay Language for Medical Terms for use in Informed Consent Documents

A   B   C   D   E   F   G   H   I  J  K   L   M   N   O   P   Q   R   S   T   U   V   W  X  Y  Z

ABDOMEN/ABDOMINAL body cavity below diaphragm that contains stomach, intestines, liver and other organs ABSORB take up fluids, take in ACIDOSIS condition when blood contains more acid than normal ACUITY clearness, keenness, esp. of vision and airways ACUTE new, recent, sudden, urgent ADENOPATHY swollen lymph nodes (glands) ADJUVANT helpful, assisting, aiding, supportive ADJUVANT TREATMENT added treatment (usually to a standard treatment) ANTIBIOTIC drug that kills bacteria and other germs ANTIMICROBIAL drug that kills bacteria and other germs ANTIRETROVIRAL drug that works against the growth of certain viruses ADVERSE EFFECT side effect, bad reaction, unwanted response ALLERGIC REACTION rash, hives, swelling, trouble breathing AMBULATE/AMBULATION/AMBULATORY walk, able to walk ANAPHYLAXIS serious, potentially life-threatening allergic reaction ANEMIA decreased red blood cells; low red cell blood count ANESTHETIC a drug or agent used to decrease the feeling of pain, or eliminate the feeling of pain by putting you to sleep ANGINA pain resulting from not enough blood flowing to the heart ANGINA PECTORIS pain resulting from not enough blood flowing to the heart ANOREXIA disorder in which person will not eat; lack of appetite ANTECUBITAL related to the inner side of the forearm ANTIBODY protein made in the body in response to foreign substance ANTICONVULSANT drug used to prevent seizures ANTILIPEMIC a drug that lowers fat levels in the blood ANTITUSSIVE a drug used to relieve coughing ARRHYTHMIA abnormal heartbeat; any change from the normal heartbeat ASPIRATION fluid entering the lungs, such as after vomiting ASSAY lab test ASSESS to learn about, measure, evaluate, look at ASTHMA lung disease associated with tightening of air passages, making breathing difficult ASYMPTOMATIC without symptoms AXILLA armpit

BENIGN not malignant, without serious consequences BID twice a day BINDING/BOUND carried by, to make stick together, transported BIOAVAILABILITY the extent to which a drug or other substance becomes available to the body BLOOD PROFILE series of blood tests BOLUS a large amount given all at once BONE MASS the amount of calcium and other minerals in a given amount of bone BRADYARRHYTHMIAS slow, irregular heartbeats BRADYCARDIA slow heartbeat BRONCHOSPASM breathing distress caused by narrowing of the airways

CARCINOGENIC cancer-causing CARCINOMA type of cancer CARDIAC related to the heart CARDIOVERSION return to normal heartbeat by electric shock CATHETER a tube for withdrawing or giving fluids CATHETER a tube placed near the spinal cord and used for anesthesia (indwelling epidural) during surgery CENTRAL NERVOUS SYSTEM (CNS) brain and spinal cord CEREBRAL TRAUMA damage to the brain CESSATION stopping CHD coronary heart disease CHEMOTHERAPY treatment of disease, usually cancer, by chemical agents CHRONIC continuing for a long time, ongoing CLINICAL pertaining to medical care CLINICAL TRIAL an experiment involving human subjects COMA unconscious state COMPLETE RESPONSE total disappearance of disease CONGENITAL present before birth CONJUNCTIVITIS redness and irritation of the thin membrane that covers the eye CONSOLIDATION PHASE treatment phase intended to make a remission permanent (follows induction phase) CONTROLLED TRIAL research study in which the experimental treatment or procedure is compared to a standard (control) treatment or procedure COOPERATIVE GROUP association of multiple institutions to perform clinical trials CORONARY related to the blood vessels that supply the heart, or to the heart itself CT SCAN (CAT) computerized series of x-rays (computerized tomography) CULTURE test for infection, or for organisms that could cause infection CUMULATIVE added together from the beginning CUTANEOUS relating to the skin CVA stroke (cerebrovascular accident)

DERMATOLOGIC pertaining to the skin DIASTOLIC lower number in a blood pressure reading DISTAL toward the end, away from the center of the body DIURETIC "water pill" or drug that causes increase in urination DOPPLER device using sound waves to diagnose or test DOUBLE BLIND study in which neither investigators nor subjects know what drug or treatment the subject is receiving DYSFUNCTION state of improper function DYSPLASIA abnormal cells

ECHOCARDIOGRAM sound wave test of the heart EDEMA excess fluid collecting in tissue EEG electric brain wave tracing (electroencephalogram) EFFICACY effectiveness ELECTROCARDIOGRAM electrical tracing of the heartbeat (ECG or EKG) ELECTROLYTE IMBALANCE an imbalance of minerals in the blood EMESIS vomiting EMPIRIC based on experience ENDOSCOPIC EXAMINATION viewing an  internal part of the body with a lighted tube  ENTERAL by way of the intestines EPIDURAL outside the spinal cord ERADICATE get rid of (such as disease) Page 2 of 7 EVALUATED, ASSESSED examined for a medical condition EXPEDITED REVIEW rapid review of a protocol by the IRB Chair without full committee approval, permitted with certain low-risk research studies EXTERNAL outside the body EXTRAVASATE to leak outside of a planned area, such as out of a blood vessel

FDA U.S. Food and Drug Administration, the branch of federal government that approves new drugs FIBROUS having many fibers, such as scar tissue FIBRILLATION irregular beat of the heart or other muscle

GENERAL ANESTHESIA pain prevention by giving drugs to cause loss of consciousness, as during surgery GESTATIONAL pertaining to pregnancy

HEMATOCRIT amount of red blood cells in the blood HEMATOMA a bruise, a black and blue mark HEMODYNAMIC MEASURING blood flow HEMOLYSIS breakdown in red blood cells HEPARIN LOCK needle placed in the arm with blood thinner to keep the blood from clotting HEPATOMA cancer or tumor of the liver HERITABLE DISEASE can be transmitted to one’s offspring, resulting in damage to future children HISTOPATHOLOGIC pertaining to the disease status of body tissues or cells HOLTER MONITOR a portable machine for recording heart beats HYPERCALCEMIA high blood calcium level HYPERKALEMIA high blood potassium level HYPERNATREMIA high blood sodium level HYPERTENSION high blood pressure HYPOCALCEMIA low blood calcium level HYPOKALEMIA low blood potassium level HYPONATREMIA low blood sodium level HYPOTENSION low blood pressure HYPOXEMIA a decrease of oxygen in the blood HYPOXIA a decrease of oxygen reaching body tissues HYSTERECTOMY surgical removal of the uterus, ovaries (female sex glands), or both uterus and ovaries

IATROGENIC caused by a physician or by treatment IDE investigational device exemption, the license to test an unapproved new medical device IDIOPATHIC of unknown cause IMMUNITY defense against, protection from IMMUNOGLOBIN a protein that makes antibodies IMMUNOSUPPRESSIVE drug which works against the body's immune (protective) response, often used in transplantation and diseases caused by immune system malfunction IMMUNOTHERAPY giving of drugs to help the body's immune (protective) system; usually used to destroy cancer cells IMPAIRED FUNCTION abnormal function IMPLANTED placed in the body IND investigational new drug, the license to test an unapproved new drug INDUCTION PHASE beginning phase or stage of a treatment INDURATION hardening INDWELLING remaining in a given location, such as a catheter INFARCT death of tissue due to lack of blood supply INFECTIOUS DISEASE transmitted from one person to the next INFLAMMATION swelling that is generally painful, red, and warm INFUSION slow injection of a substance into the body, usually into the blood by means of a catheter INGESTION eating; taking by mouth INTERFERON drug which acts against viruses; antiviral agent INTERMITTENT occurring (regularly or irregularly) between two time points; repeatedly stopping, then starting again INTERNAL within the body INTERIOR inside of the body INTRAMUSCULAR into the muscle; within the muscle INTRAPERITONEAL into the abdominal cavity INTRATHECAL into the spinal fluid INTRAVENOUS (IV) through the vein INTRAVESICAL in the bladder INTUBATE the placement of a tube into the airway INVASIVE PROCEDURE puncturing, opening, or cutting the skin INVESTIGATIONAL NEW DRUG (IND) a new drug that has not been approved by the FDA INVESTIGATIONAL METHOD a treatment method which has not been proven to be beneficial or has not been accepted as standard care ISCHEMIA decreased oxygen in a tissue (usually because of decreased blood flow)

LAPAROTOMY surgical procedure in which an incision is made in the abdominal wall to enable a doctor to look at the organs inside LESION wound or injury; a diseased patch of skin LETHARGY sleepiness, tiredness LEUKOPENIA low white blood cell count LIPID fat LIPID CONTENT fat content in the blood LIPID PROFILE (PANEL) fat and cholesterol levels in the blood LOCAL ANESTHESIA creation of insensitivity to pain in a small, local area of the body, usually by injection of numbing drugs LOCALIZED restricted to one area, limited to one area LUMEN the cavity of an organ or tube (e.g., blood vessel) LYMPHANGIOGRAPHY an x-ray of the lymph nodes or tissues after injecting dye into lymph vessels (e.g., in feet) LYMPHOCYTE a type of white blood cell important in immunity (protection) against infection LYMPHOMA a cancer of the lymph nodes (or tissues)

MALAISE a vague feeling of bodily discomfort, feeling badly MALFUNCTION condition in which something is not functioning properly MALIGNANCY cancer or other progressively enlarging and spreading tumor, usually fatal if not successfully treated MEDULLABLASTOMA a type of brain tumor MEGALOBLASTOSIS change in red blood cells METABOLIZE process of breaking down substances in the cells to obtain energy METASTASIS spread of cancer cells from one part of the body to another METRONIDAZOLE drug used to treat infections caused by parasites (invading organisms that take up living in the body) or other causes of anaerobic infection (not requiring oxygen to survive) MI myocardial infarction, heart attack MINIMAL slight MINIMIZE reduce as much as possible Page 4 of 7 MONITOR check on; keep track of; watch carefully MOBILITY ease of movement MORBIDITY undesired result or complication MORTALITY death MOTILITY the ability to move MRI magnetic resonance imaging, diagnostic pictures of the inside of the body, created using magnetic rather than x-ray energy MUCOSA, MUCOUS MEMBRANE moist lining of digestive, respiratory, reproductive, and urinary tracts MYALGIA muscle aches MYOCARDIAL pertaining to the heart muscle MYOCARDIAL INFARCTION heart attack

NASOGASTRIC TUBE placed in the nose, reaching to the stomach NCI the National Cancer Institute NECROSIS death of tissue NEOPLASIA/NEOPLASM tumor, may be benign or malignant NEUROBLASTOMA a cancer of nerve tissue NEUROLOGICAL pertaining to the nervous system NEUTROPENIA decrease in the main part of the white blood cells NIH the National Institutes of Health NONINVASIVE not breaking, cutting, or entering the skin NOSOCOMIAL acquired in the hospital

OCCLUSION closing; blockage; obstruction ONCOLOGY the study of tumors or cancer OPHTHALMIC pertaining to the eye OPTIMAL best, most favorable or desirable ORAL ADMINISTRATION by mouth ORTHOPEDIC pertaining to the bones OSTEOPETROSIS rare bone disorder characterized by dense bone OSTEOPOROSIS softening of the bones OVARIES female sex glands

PARENTERAL given by injection PATENCY condition of being open PATHOGENESIS development of a disease or unhealthy condition PERCUTANEOUS through the skin PERIPHERAL not central PER OS (PO) by mouth PHARMACOKINETICS the study of the way the body absorbs, distributes, and gets rid of a drug PHASE I first phase of study of a new drug in humans to determine action, safety, and proper dosing PHASE II second phase of study of a new drug in humans, intended to gather information about safety and effectiveness of the drug for certain uses PHASE III large-scale studies to confirm and expand information on safety and effectiveness of new drug for certain uses, and to study common side effects PHASE IV studies done after the drug is approved by the FDA, especially to compare it to standard care or to try it for new uses PHLEBITIS irritation or inflammation of the vein PLACEBO an inactive substance; a pill/liquid that contains no medicine PLACEBO EFFECT improvement seen with giving subjects a placebo, though it contains no active drug/treatment PLATELETS small particles in the blood that help with clotting POTENTIAL possible POTENTIATE increase or multiply the effect of a drug or toxin (poison) by giving another drug or toxin at the same time (sometimes an unintentional result) POTENTIATOR an agent that helps another agent work better PRENATAL before birth PROPHYLAXIS a drug given to prevent disease or infection PER OS (PO) by mouth PRN as needed PROGNOSIS outlook, probable outcomes PRONE lying on the stomach PROSPECTIVE STUDY following patients forward in time PROSTHESIS artificial part, most often limbs, such as arms or legs PROTOCOL plan of study PROXIMAL closer to the center of the body, away from the end PULMONARY pertaining to the lungs

QD every day; daily QID four times a day

RADIATION THERAPY x-ray or cobalt treatment RANDOM by chance (like the flip of a coin) RANDOMIZATION chance selection RBC red blood cell RECOMBINANT formation of new combinations of genes RECONSTITUTION putting back together the original parts or elements RECUR happen again REFRACTORY not responding to treatment REGENERATION re-growth of a structure or of lost tissue REGIMEN pattern of giving treatment RELAPSE the return of a disease REMISSION disappearance of evidence of cancer or other disease RENAL pertaining to the kidneys REPLICABLE possible to duplicate RESECT remove or cut out surgically RETROSPECTIVE STUDY looking back over past experience

SARCOMA a type of cancer SEDATIVE a drug to calm or make less anxious SEMINOMA a type of testicular cancer (found in the male sex glands) SEQUENTIALLY in a row, in order SOMNOLENCE sleepiness SPIROMETER an instrument to measure the amount of air taken into and exhaled from the lungs STAGING an evaluation of the extent of the disease STANDARD OF CARE a treatment plan that the majority of the medical community would accept as appropriate STENOSIS narrowing of a duct, tube, or one of the blood vessels in the heart STOMATITIS mouth sores, inflammation of the mouth STRATIFY arrange in groups for analysis of results (e.g., stratify by age, sex, etc.) STUPOR stunned state in which it is difficult to get a response or the attention of the subject SUBCLAVIAN under the collarbone SUBCUTANEOUS under the skin SUPINE lying on the back SUPPORTIVE CARE general medical care aimed at symptoms, not intended to improve or cure underlying disease SYMPTOMATIC having symptoms SYNDROME a condition characterized by a set of symptoms SYSTOLIC top number in blood pressure; pressure during active contraction of the heart

TERATOGENIC capable of causing malformations in a fetus (developing baby still inside the mother’s body) TESTES/TESTICLES male sex glands THROMBOSIS clotting THROMBUS blood clot TID three times a day TITRATION a method for deciding on the strength of a drug or solution; gradually increasing the dose T-LYMPHOCYTES type of white blood cells TOPICAL on the surface TOPICAL ANESTHETIC applied to a certain area of the skin and reducing pain only in the area to which applied TOXICITY side effects or undesirable effects of a drug or treatment TRANSDERMAL through the skin TRANSIENTLY temporarily TRAUMA injury; wound TREADMILL walking machine used to test heart function

UPTAKE absorbing and taking in of a substance by living tissue

VALVULOPLASTY plastic repair of a valve, especially a heart valve VARICES enlarged veins VASOSPASM narrowing of the blood vessels VECTOR a carrier that can transmit disease-causing microorganisms (germs and viruses) VENIPUNCTURE needle stick, blood draw, entering the skin with a needle VERTICAL TRANSMISSION spread of disease

WBC white blood cell

Supreme Court blocks an EPA plan to curb ozone air pollution

Environmental advocates say the court’s decision in ohio v. epa shows it "is no longer neutral in cases involving environmental regulations.”.

In a ruling that court observers said was “really extraordinary” and achieved through “a procedural strangeness,” the Supreme Court on Thursday blocked a federal plan to reduce air pollution that blows across state lines. 

The 5-4 decision from the court’s conservative justices halts, for now, the Environmental Protection Agency’s “Good Neighbor” rule and its stringent smokestack emissions requirements on power plants and other industrial sources. The court ruled that the EPA failed to “reasonably explain” its policy and placed it on hold pending the outcome of more than a dozen lawsuits.

Environmental advocates said the decision will leave millions of people breathing dirtier air this summer. They also worry that future challenges to federal policies could similarly “ short-circuit the normal process of judicial review ” by appealing directly to the Supreme Court. 

“What this shows me is that this court is no longer neutral in cases involving environmental regulations,” Sam Sankar, senior vice president for programs at Earthjustice, told reporters on Thursday. “It’s actively skeptical of EPA and new environmental regulations.”

Grist thanks its sponsors. Become one .

To support our nonprofit environmental journalism, please consider disabling your ad-blocker to allow ads on Grist. Here's How

The Good Neighbor plan was adopted to ensure compliance with a 2015 update to the Clean Air Act that tightened federal limits on ozone, a harmful pollutant and the primary component of smog. That update triggered a requirement for each state to submit a plan within three years detailing how it would reduce ozone-forming emissions from coal-fired power plants and heavy industry to protect downwind states. The law also required the EPA to craft a plan for states that failed to provide an adequate proposal.

Twenty-one states submitted plans indicating that they would do nothing, while Pennsylvania and Virginia didn’t offer one at all. In March 2023, the EPA issued its own proposal for the 23 states, prompting dozens of lawsuits in federal courts around the country.

Ohio, Indiana, and Virginia, joined by pipeline company Kinder Morgan, U.S. Steel, and others, in challenging the plan , argued that the EPA’s approach failed to consider the impact of a federal plan on each state. They also alleged that the steps needed to implement it could create economic and operational harm even as lower courts decide other lawsuits.

The justices, in a majority opinion written by Justice Neil Gorsuch, agreed. Gorsuch noted that the EPA’s plan to implement pollution reduction requirements regardless of how many states are involved was not “reasonably explained.” 

“The government refused to say with certainty that EPA would have reached the same conclusions regardless of which states were included,” he wrote.

But Justice Amy Coney Barrett argued in a strongly worded dissent that the agency “thoroughly explained” its methodology for calculating emissions reduction requirements, which depends not on the number of states included in the plan, but on cost-effective measures that can be achieved at each source of pollution. Barrett also noted that the plaintiffs and the court failed to identify how exactly the rule would differ if the number of states changed.

Sankar, who has for 25 years closely watched the Supreme Court’s decisions on environmental matters, called the ruling “really extraordinary” for two reasons. First, the EPA did in fact explain its reasoning in numerous documents. Second, the case landed on the court’s emergency docket, a lineup that until recently largely was reserved for minor procedural issues typically decided without the justices hearing oral arguments.

Zachary Fabish, senior attorney at the Sierra Club, told Grist that by hearing oral arguments and issuing so consequential an opinion on its emergency docket, the Supreme Court has created a kind of “procedural strangeness” in its decision making. He pointed out that the case had yet to be decided by the U.S. Court of Appeals for the District of Columbia Circuit, which will likely rule on the legitimacy of the Good Neighbor plan sometime next year. That means that even before the lower court’s decision, the Supreme Court has already weighed in — but without the benefit of extensive briefings, arguments, and opinions from a lower court, he said. 

Today’s ruling suggests future environmental policies could face similar challenges on the emergency docket, said Sankar. “It’s really hard to say that there are any rules that aren’t subject to this kind of attack.”

Clean air advocates highlighted another glaring omission from the court’s opinion: It made no mention of the public health toll of the pollution on downwind states. Ozone forms in high temperatures and sunlight, making summer months particularly conducive to its formation. As Fabish puts it, “The hotter the summer, the worse the ozone season” — a foreboding sign as much of the country broils under relentless heat . Research has shown that ozone increases the risk of life-threatening conditions like asthma attacks, especially among children, older adults, people who work outside, and people with respiratory and other illnesses.

Last summer, data collected by the EPA showed that from May to September, the Good Neighbor rule — which at the time was in effect in 10 states, including Illinois, New York, and Ohio — successfully drove down ozone-forming emissions by 18 percent . “Staying this rule threatens the progress that happened last ozone season when the rule was partially in effect,” Fabish said.

A message from   

Your support matters

Grist is the only award-winning newsroom focused on exploring equitable solutions to climate change. It’s vital reporting made entirely possible by loyal readers like you. At Grist, we don’t believe in paywalls. Instead, we rely on our readers to pitch in what they can so that we can continue bringing you our solution-based climate news.

Grist is the only award-winning newsroom focused on exploring equitable solutions to climate change. It’s vital reporting made entirely possible by loyal readers like you. At Grist, we don’t believe in paywalls. Instead, we rely on our readers to pitch in what they can so that we can continue bringing you our solution-based climate news.  

After SCOTUS decision, Georgia will keep ‘problematic’ voting system for energy regulators

The kids are not alright: countries fail to include children in their climate plans, a lack of data hampers efforts to fix racial disparities in utility cutoffs, electric vehicles need cobalt. congolese miners work in dangerous conditions to get it., california sides with big utilities, trimming incentives for community solar projects, inside the university of chicago’s controversial solar geoengineering initiative, albuquerque made itself drought-proof. then its dam started leaking., how america’s ‘most powerful lobby’ is stifling efforts to reform oil well cleanup in state after state, no parm, no problem: how modern chefs are veganizing the caesar salad, modal gallery.