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Guest Chuck Yanikoski

The arrangement you describe would not be proper. However, there is a different arrangement that is becoming a little more common than it used to be, and it may be what is really going on.


In these newer arrangements, the employer does not "dip into" your 403(b) plan, rather they PAY into your 403(b) plan. Specifically, instead of paying you your sick pay (and/or vacation pay) in cash when you retire, they pay the money into your 403(b) plan. This can be advantageous to them, because their is no FICA or other payroll taxes/deductions to deal with, since it is a retirement plan contribution rather than compensation. Also because, sometimes, they stretch the payments out over several years, which helps with their budgets. It can also be of benefit to YOU, because you also have no payroll deductions from it -- 100% goes into your 403(b) plan, and remains tax-sheltered there until you decide to take it out. Also, since it is an employer contribution, it is not subject to the normal $13,000 limit.


The big hitch, however, is that you do not get a choice. If you did have a choice, the government would consider it the same as if you had received the cash and then voluntarily put it into the plan -- that is, it would be taxable right away, whether you took it in cash or had it put into the plan. Only by making it the same for everyone is this effect avoided. Unfortunately, not everyone has the same needs, and what is a fine benefit for one person can be a bit of a hardship for someone else.


If you really are retiring, though, and you are age 55 or over, you can start taking money out of your 403(b), so it's not that big a deal, usually. Your employer puts it in, you take it out, if you want to.


You should go back and see if what is happening in your case is what I have just described. If it is, it actually may be a good thing for you...


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