403b Plan
What is a 403b? Understanding Your Retirement Savings Option
A 403(b) plan, often referred to as a tax-sheltered annuity or a TSA, is a retirement plan offered by public schools and certain 501(c)(3) tax-exempt organizations.
These plans allow us to set aside funds on a pre-tax basis through salary deferrals towards our retirement. Think of it like a 401(k), but primarily for employees of educational institutions and non-profit organizations.
Here are some key characteristics of a 403(b) plan:
- Contributions: Our contributions are made through salary reduction agreements, which means they are taken from our paycheck before taxes.
- Taxes: Our money grows tax-deferred, meaning we don’t pay taxes on the earnings until we withdraw them, usually at retirement.
- Withdrawals: Generally, we can start making penalty-free withdrawals after the age of 59 ½, in line with IRS guidelines.
| Plan Types | Description |
|---|---|
| Traditional 403(b) | Contributions are made pre-tax, lowering our taxable income in the contribution year. |
| Roth 403(b) | Contributions are made after-tax, but withdrawals during retirement are typically tax-free. |
In the event we change jobs, we might have options such as rolling over our 403(b) to another qualified retirement plan or an IRA. It’s important to be aware that the IRS sets annual limits to the amount we can contribute.
For further understanding, additional rules and features may apply to 403(b) accounts, such as catch-up contributions if we are over age 50, or specifics regarding the plan’s investment choices. Always consult with a tax advisor or financial consultant to explore how a 403(b) fits into our individual retirement strategy.