Tags: Retirement | 403b

What Is a 403(b)?

Image: What Is a 403(b)?

By    |   Monday, 04 May 2015 12:37 PM

A 403(b) investment plan is for employees of a school, church, government or non-profit organization. The money in a 403(b) grows tax free until it's time for retirement and withdrawals, which are taxed.

Presumably, you are at a lower tax bracket during retirement for overall savings while your money was growing during your working years.

A 403(b) appears similar to IRA or 401(k) plans, but one benefit is that you can start making withdrawals without tax penalties if you retire at age 55 or older. IRAs and 401(k) plans allow penalty-free withdrawals at age 59 and a half. If retired, you must start taking required minimum distributions at age 70 and a half with a 403(b).

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You can contribute three times as much as in an IRA or 401(k) plan with $18,000 allowed each year through a 403(b). Catch-up contributions of an additional $6,000 are allowed for employees age 50 or older, according to 2015 IRS regulations. Your investments are also boosted by employers who provide matching contributions if they choose, which can increase the value of your fund.

Public employees have more control over their 403(b) plans than with traditional pension plans, which are based on investment decisions of administrators. Pension payouts are also based on years of service and salary, whereas 403(b) distributions depend on how much money a person's fund has accumulated over the years.

Investments in a 403(b) account come from the employee's salary. The employee can choose from investments offered through the plan by the employer.

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Your investments might be limited compared to other retirement plans, says Neal Frankle, a certified financial planner, as reported in U.S. News. Some 403(b) plans offer fixed or variable annuities, which usually cost more in fees to manage. Employees may have restrictions on changing their investment choices, as they can do with IRA plans.

If you find your investment choices limited, you could consider investing in a Roth IRA, which provides a wide array of options, according to 403bwise.

Younger workers who can’t contribute a significant amount to a 403(b) might find this appealing. Employees can also contribute to another retirement plan while putting money into their 403(b) plan to increase their retirement savings.

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A 403(b) investment plan is for employees of a school, church, government or non-profit organization. The money in a 403(b) grows tax free until it's time for retirement and withdrawals, which are taxed.
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2015-37-04
Monday, 04 May 2015 12:37 PM
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