What is a 403b Plan?

A 403b plan is a retirement savings plan for employees of public schools, certain tax-exempt organizations, and certain ministers. Such plans are also known as tax-sheltered annuities (TSA) plans. A 403b plan allows you to contribute pre-tax dollars towards a special retirement account. On top of that, the employer may also be able to contribute towards the account as well. A 403b plan also may offer tax-deferred yearly earnings, similar to 401k retirement plans.

Benefits of a 403b Plan

A 403b plan provides an effective way to save for retirement by allowing employees to contribute pre-tax money from their salary. This means your contributions are taken from your paycheck before income taxes are deducted, allowing you to save more money for your retirement. This also boosts your take-home pay considerably, as you’ll have less of your paycheck going towards taxes.

The money in your 403b plan grows without being taxed until you start taking withdrawals. So as long as you don’t make any withdrawals before retirement, you’ll be able to enjoy the compounding effect of your investments and enjoying tax-free growth of your account.

Additionally, many employers will match your contributions up to certain limits. So this can be an excellent way to boost your retirement savings.

Contributing to a 403b Plan

To contribute to a 403b plan, you can choose among several types of investments. These may include mutual funds, insurance contracts (variable annuities), and, in some cases, certain stocks offered by the employer.

Typically, you’ll be able to contribute until the plan’s year-end or up to the amount allowed by law. The amount of your contribution is usually deducted from your paychecks via payroll deduction. But some employers also allow for after-tax Roth contributions or “catch-up” contributions for those who are age 50 or over.

Each year you’ll receive a statement about contributions, earnings and withdrawals for the year. If you’re self-employed and have a 403b account, you can make contributions through ordinary payroll deductions from the business.

Conclusion

A 403b plan is a powerful retirement saving tool. It lets you access the power of pre-tax contributions and tax-deferred growth of your investments. It can also be an excellent way to save even more for retirement if your employer offers matching contributions. So if you’re offered a 403b plan and you want to start saving for retirement, then it’s definitely worth considering.