403(b)/414(h) tax deferred?

B.J. Ahn

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Apr 12, 1998, 3:00:00 AM4/12/98

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I am not sure what the difference between the 403(b) and
the 414(h) retirement funds... Is one for non-profits
and the other for public organizations?

I work for the State University of New York and thought
I had 403(b), but on my W-2, it says 414(h).

I believe the federal taxes are deferred. How about the
state/local taxes? I am filing a New York state/city
return.

From the NY state booklet, it seems the 414h is taxed,
but the 403b is not. It wasn't very clear to me.

Any help would be appreciated.

Thanks in advance.

B.J. Ahn

Don Priebe

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Apr 20, 1998, 3:00:00 AM4/20/98

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bja...@is6.nyu.edu (B.J. Ahn) wrote:

> I am not sure what the difference between the 403(b) and
> the 414(h) retirement funds... Is one for non-profits
> and the other for public organizations?

A 403(b) is a private retirement plan, similiar to a
401(k) with minor differences, that is available
nationwide to employees of non-profit institutions.
You can choose to participate or not, and choose the
amount within limits.

A 414(h) is a New York State pension plan for public
employees in Tier III and IV. You probably have no
choice as to the amount.

> I work for the State University of New York and thought
> I had 403(b), but on my W-2, it says 414(h).

You may have both! Look in box 13 of your W2.
If there's an "E" there you also have a 403(b).

> I believe the federal taxes are deferred. How about the
> state/local taxes? I am filing a New York state/city
> return. From the NY state booklet, it seems the 414h is taxed,
> but the 403b is not. It wasn't very clear to me.

Technically, your salary is reduced to the extent that
you contribute to a 403(b). So you pay no federal or
state income tax on your contribution. You do pay
social security and medicare. When you retire, the
payments that you receive from the 403(b) are taxable on
the federal return, but up to $20K per year is free of
New York state tax as long as you are over 59-1/2.

The amount that you contribute to your 414(h) pension is
not subject to federal tax, but is subject to social
security, medicare, and New York state tax. When you
retire, the payments are taxable on the federal level,
but completely free of New York state tax regardless of
age or amount.

Don EA in NY

Don Priebe (reply to pri...@iname.com)

Jeff H

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Apr 25, 1998, 3:00:00 AM4/25/98

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403(b) is a tax deferred annuity - similar to a 401(k).
Contributions to a 403b plan are tax deferred for both
state and federal returns.

414(h) is a special provision relating to some public
employee PENSION plans, inlcuding the NY State Teachers
Retirement System. Under 414h contributions to a
qualifying pension plan are made on a "pre-tax" basis
for Federal purposes. When the NY State Legislature
authorized the state employee plans to participate in
414h they adopted a rule that they were NOT tax deferred
for State Income tax purposes. The reason is that NY
State does not tax benefits from those plans - your
pension will be 100% Tax Free for purposes of State
Income Tax.

Mechanically, what you have to do is to add back the
amount of your 414h contribution on your state tax vform
- line 20 of IT201.

------------------
Jeff H.
Certified Financial Planner

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