Tags: Retirement | 403b | pros | cons | funding

Pros and Cons of Funding a 403(b)

By    |   Monday, 04 May 2015 04:29 PM

If you work for a school system, health agency, church, non-profit organization or the government, your employer might offer a 403(b) retirement plan. Although the plan has many advantages, one must also look at several drawbacks it has compared to other retirement plans.

In a 403(b) plan, the IRS allows contributions of $18,000 a year. Allowable contributions for a qualified individual retirement account, or IRA are $5,500 or $6,500 for people age 50 and older, according to IRS regulations.

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What makes it possible for such a high annual contribution for a 403(b) account are the employer matching funds. These contributions depend on the particular plan, so check with the plan administrator or whoever handles retirement plans at work. 

The 403(b) plan allows catch-up contributions of an additional $6,000 for employees who reach age 50. You can also take out your retirement savings at age 55 without tax penalties. IRA or 401(k) accounts usually have limits of age 59 and a half.

The money you put into your account depends on how much money you make and/or can afford. Younger employees may not contribute as much as a worker who has been employed longer.

If you can make a contribution of $5,500 and your employer matching it is at 50 percent with $2,750, you'll have a total of $8,250 invested, according to Money-Zine.com.

Unfortunately, the 403(b) plan has limitations. The investment choices are few and can have expensive fees when compared to an IRA, reports certified financial planner Neal Frankle, as reported in U.S. News. Some plans include fixed or variable annuities, which have restrictions and may add more expenses in fees.

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Depending on your 403(b) plan, you also have restrictions with how often you can change your investments. IRA account holders can change their investments whenever they choose and the options usually cost less than with a 403(b) plan.

An IRA also has more flexible rules for beneficiaries, allowing a person to offer benefits to people other than a spouse.

The various qualified retirement plans have advantages and disadvantages. If you are just starting out in the workplace, it would be a good idea to take advantage of a 403(b) plan to start a retirement savings plan with your limited finances.

As you get older and your income begins to rise, you may have contributed the maximum to a 403(b) account. At that time, you could add another retirement plan, such as an IRA, to your savings to take advantage of the many investment choices available.

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If you work for a school system, health agency, church, non-profit organization or the government, your employer might offer a 403(b) retirement plan. Although the plan has many advantages, one must also look at several drawbacks it has compared to other retirement plans.
403b, pros, cons, funding
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2015-29-04
Monday, 04 May 2015 04:29 PM
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