403(b) Plans Explained
A 403(b) plan is similar to a 401(k) plan in that it's an easy way to save for retirement and
benefit from pre-tax savings.
403(b)s are retirement savings plans that allow employee contributions to grow tax
deferred until withdrawn at retirement. The plans are designed for employees of eligible
tax-exempt organizations, including:
Public education institutions - elementary and high schools, colleges and
Churches or church-related organizations
501(3)(c) tax-exempt organizations, such as
Social and welfare organizations
Museums and others
Sometimes called tax-sheltered annuities, tax-deferred annuities or tax-sheltered custodial
accounts, 403(b)s are offered through your employer and the contributions you make
come out of your paycheck before taxes. Because the money is coming out of your
paycheck pretax, your taxable income is lower and your tax burden is decreased. Plus,
since the money is coming out of your paycheck before you get it, you'll never even see it
to miss it!
Why a 403(b) is a Smart Option
Tax-deferred growth is one of the primary advantages of a 403(b) over other
savings vehicles. Tax-deferral on income and growth generated by your account
allows your account to grow faster.
At retirement, chances are, you'll probably be in a lower tax bracket than you are
now, and you'll pay less in taxes on the money you're earning now.
Contributing to a 403(b) is practically painless - the money is taken out of your
paycheck before taxes, so you never even see it to miss it.
A 403(b) plan gives you control over your retirement plan by letting you choose
from a variety of investments that may match your goals.
Investing regularly over a long period of time allows you to purchase more
mutual fund shares when prices are down and fewer when prices are high. This
process is called dollar cost averaging.1 Over the long run, it reduces the effects of
market volatility on y