This is a supplemental retirement plan which provides employees with the opportunity to invest money on a before tax basis or after tax (ROTH) basis, using payroll deduction. Because your taxable income is reduced, you can invest money and defer taxes. The before tax aspect is what makes tax deferred annuities very attractive. Participants defer federal and state income tax on their contributions. In addition, interest or earnings on your account accumulates tax-deferred. No taxes are paid on the account until you begin withdrawing funds. If you choose to invest money on an after tax basis or into what is called a ROTH account, the money will come out of your paycheck after it has been taxed. Therefore, distributions from the ROTH 403(b) will be tax-free for federal income tax purposes if they are Qualified Distributions.
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