Non Profit Retirement Plans 2024

Nonprofit organizations provide a variety of retirement plans to their employees to provide them the flexibility to save for the future. These include NQDC, SIMPLE IRAs, SEP IRAs, 403(b), 401(k), and 457(b). These plans have different features and benefits; some offer high contribution limits, while smaller nonprofits offer others and have their own rules.

For instance, NQDC is a good option for organizations with substantial cash flow and well-paid employees, while SIMPLE is ideal for smaller nonprofit organizations with minimal costs. In this article, we’ll discuss several retirement plans for nonprofit organizations. We will also examine why 401k, 403b, and 457(b) are the most popular choices for nonprofits.

403(b) and 401(k) function similarly. These plans accept funds before the tax is paid; the money grows tax-free until the withdrawal. When you withdraw your funds at retirement, you must pay the taxes. They differ only in the investment options they provide, which will be discussed later. 457(b) differs from 403(b) and 401(k) regarding withdrawal rules and eligibility.

Non-Profit 403(b)

403(b) plans, also known as Tax Sheltered Annuity (TSA), are offered to the employees of nonprofit organizations that represent causes like education, religion, science, philanthropy, literacy, and safeguarding animals and children.

Some examples of 403(b) eligible organizations according to the IRS section 501(c)(3) include public schools, nonprofit universities, churches, particular ministries, hospitals, armed forces, and social service agencies.

Under certain conditions, withdrawal from 403(b) can be done. Similarly, loans from 403(b) can be taken based on certain factors.

Contribution Limits

There are contribution limits for each of these. For 2023, this limit was $22,500, which increased to $23,000 in 2024. The catchup contributions of up to $7,500 are eligible for employees 50 or older.

There is an additional contribution option for employees who have served the organization for up to 15 years, making them eligible to make a catch-up contribution of $3,000 annually for up to five years.

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Investment Options

The investment choices for 403(b) retirement accounts are limited to the options associated with 401(k). Generally, 403(b) account investments are limited to annuity contracts, custodial accounts, and mutual funds (Churches may have additional options).

Non Profit 401k

Generally, 401(k) plans are offered to for-profit employees, but the rules are changed with the passage of SECURE Act 2.0 in December 2022. Under the new rules, certain nonprofit organizations also administer 401k plans for their employees, which is a low cost and provides more investment options. Also, 401(k) is an optimal choice for certain tax-exempt organizations, like 501(c)(6) business leagues, as these are not eligible to use 403(b) plans. As many employers offer 401k plans, it is more widely available throughout the United States.

Investment Options

401(k) plans provide a diverse choice of investment options. According to the Employee Retirement Income Security Act of 1974 (ERISA), these options include mutual funds, stocks, bonds, annuity contracts, and individually managed portfolios.

This is the most important benefit of nonprofit 401(k) plans, providing their employees with a varied selection for investment as compared to nonprofit 403(b), which only has a few options.

Contribution Limits

The contribution limit for nonprofit 401(k) is the same as 403(b). This limit was $22,500 for the year 2023. In 2024, this limit is increased to $23,000. For employees 50 or older, the catchup contribution of $7,500 is possible for 2023 and 2024.

Nonprofit 401(k) plans also offer matching contributions for organizations. The limit for employer and employee match is $69,000 for 2024, with a catch-up contribution of $7,500 for employees 50 or older.

They also offer a Roth option, in which contributions are made on after-tax dollars, which allows tax-free withdrawal on retirement.

Loans and Hardship Withdrawals

Nonprofit 401k plans allow employees to access their funds under certain conditions. However, the employer must allow them to utilize these options.

Loans: Employees can lend up to $50,000 or 50 percent of their secured account balance (whichever is less).
Hardship withdrawals: Employees can take a certain amount from their plan on which penalties may or may not apply (based on plan condition and type of hardship).

457(b) Plans

457b (deferred compensation programs) plans are similar to 403b and 401k as they all are tax-deferred. They accept pre-tax dollars, meaning the funds are transferred before paying the tax. Taxes are applied at the time of withdrawal. These plans are available to state and local government employees and certain nonprofits.

The contribution limit is the same as 403b and 401k, which is $23,000 for 2024. For employees 50 or older, catch-up provision allows an additional $7,500.

Unlike 401(k) and 403(b) plans, there is no age limit for withdrawing funds. This prevents the early withdrawal penalty for distributions, making 457(b) plans an ideal option for employers needing earlier access to the funds.

Conclusion

Nonprofits have a vast selection of retirement plans to uphold their employees’ financial futures. Knowing the specific aspects and upsides of not-for-profit retirement plans can help nonprofit employees make smart choices about their financial futures.

Employers generally have multiple retirement plans to offer their employees. Specifically, tax-free nonprofit organizations can choose between providing a nonprofit 403(b), a nonprofit 401(k), or both. Choose your plan wisely by carefully evaluating each aspect, as the workplace retirement plan is one of the most important factors in raising your retirement savings.