403(b) plans offer employees of public schools, certain 501(c)(3) tax-exempt organizations and churches an efficient means to save for retirement. Contributions are made pre-tax while earnings won’t be taxed until being withdrawn during retirement.
Employers may offer matching contributions. Furthermore, 403(b)s tend to fall outside ERISA guidelines, leading to reduced fees.
Tax-Deferred Savings
A 403b retirement investment account is typically provided to public schools, certain religious organizations, and tax-exempt 501(c)(3) nonprofits. Also referred to as a tax-sheltered annuity plan (TSA), the 403b offers similar features as its more heavily-regulated counterpart.
Employees can contribute pretax dollars into a 403b, where it grows tax-free until being withdrawn in retirement. Because most will likely fall into lower tax brackets during their golden years, tax deferral can be an invaluable benefit for many individuals.
Employers also often match some of their employees’ contributions, providing an extra incentive for saving for retirement. With a 403b plan, automatic payroll deductions help keep you on track – no more worrying about saving in case your employment changes! Plus they’re portable if needed: should your plans not meet employer criteria at your new company, simply roll your contributions over into an IRA at that company or use one with portable features, like 403b plans from multiple employers!
Matching Contributions
403(b) plans do not typically provide employer matching contributions, but those employed with their current employers for at least 15 years may make additional contributions up to $7,500 annually as part of a catch up contribution. 403(b) plans also lend money out as loans that must be repaid within five years and do not exceed 50% of vested account balances.
These retirement savings vehicles, similar to 401(k) accounts, are open to employees of nonprofit organizations, government agencies, schools or churches. They allow participants to automate saving by having money deducted automatically from each paycheck. Participating employees may select investments like mutual funds and annuities offered by their plan sponsor; when leaving an employment relationship they can transfer the savings account directly into an IRA without incurring taxes on any contributions they made or earnings earned while working there.
Investment Options
Though 401(k) plans are more popular among tax-exempt employers, 403b retirement investments may also be offered by tax-sheltered annuity accounts (TSA). Also referred to as retirement investment accounts or savings accounts, these TSAs allow participants to make elective salary reduction agreements through Salary Reduction Agreements that exclude deferrals from taxable income and can choose among various vendors offering mutual funds and annuities at different costs.
Like 401(k) accounts, 403b retirement investment accounts offer pretax savings accounts where account holders can invest in mutual funds and annuities managed by trusted investment companies. Annual contribution limits for both plans are equivalent, and both allow workers 50 and older to make additional “catch-up” contributions each year. Furthermore, both plans may provide employer matching contributions; though employer matching may be less common among 403(b)s than with 401(k). Each type may provide access to different investments depending on vendors and employers – giving account holders greater control.
Rollover Options
Once a 403b participant leaves their employer, they have two choices for how they’ll handle their money – leave it in the plan or roll it into an individual retirement account (IRA). The decision depends on several factors including their new employer’s retirement plan fees and investment options as well as personal preferences.
Thrivent financial advisors can assist workers in considering all their options and selecting the most beneficial path forward, taking into account factors like their tax status, unique goals and cash flow.
A 403(b) retirement plan is a type of defined contribution plan used by employees of tax-exempt organizations such as churches, hospitals, educational institutions and some nonprofits. Contributions made to such plans are invested in mutual funds or annuities offered by plan vendors; all contributions remain tax free until withdrawal (usually after age 59 1/2); early withdrawals usually incur a 10% penalty tax.
