Employees elect to set aside money for retirement on a pre-tax basis through a salary reduction agreement with MCPS. This is an arrangement where the participating employee agrees to take a reduction in salary. The amount that the salary is reduced is directed to investments offered through the employer and selected by the employee. These contributions are called elective deferrals and are excluded from the employee's income.

Contributions grow tax-deferred until the time of retirement, when withdrawals are taxed as ordinary income. Further details on the 403(b) can be found in IRS Publication 571, Tax Sheltered Annuity 403(b) Plans (PDF). This publication may be downloaded from the Internal Revenue Service (IRS). It may also be obtained by calling 1-800-TAX-FORMS.