Thoughts on 403(b) Plans

Helpful Information For Our Teacher Members:

Investment Options and Important Advice About 403(b) Plans From the Securities and Exchange Commission.

As an employee of a public school, you likely have access to both a pension and a retirement savings plan called a “403(b)” plan.  Let’s examine what a 403(b) plan is, and then go through the choices you’ll likely need to make if you decide to invest in a 403(b) plan.

What Is a 403(b) Plan?

A 403(b) plan is a type of tax-deferred retirement savings program that is available to employees of public schools, employees of certain non-profit entities, and some members of the clergy.  Because you do not have to pay taxes on the amount you contribute to a 403(b) plan for the year in which you contributed to the plan, investing in a 403(b) plan can lower your overall tax burden — at least in the present.  You can defer the income tax on your contributions until you begin making withdrawals from your account — typically after you retire.  The earnings on your account also grow tax-free until withdrawal.

Investment Options

If you are eligible to participate in a 403(b) plan, you may have to choose among different types of investments, depending on how your employer structures the plan. It will be up to you to choose investments that will best meet your financial objectives. 403(b) plans typically offer fixed annuities, variable annuities, and mutual funds. Here is a brief description of each:

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About the 403(b) and Why It Is Important

Financial planning for retirement is important! To do this well, individuals need a good understanding of the resources available and how those resources may benefit them. For public school teachers, one of the most important considerations in this regard is participation in a 403(b) plan. 403(b)wise is a web site that individuals can use to learn about 403(b) plans. We have taken a portion of the  material on that web site to provide some basics, but we urge readers to visit the site themselves and/or use other resources to gain a solid understanding of the 403(b) plan. In no way should this post be taken as financial advice.

The 403(b) is a retirement plan available to certain employees of public schools, employees of certain tax-exempt organizations, and certain ministers. The 403(b) is named after the section of the IRS code governing it.

The 403(b) can be an excellent way to save money for retirement. It can serve as a supplement to a traditional pension plan or other retirement plan(s), or as a stand-alone plan.

All public school employees and not-for-profit workers are eligible to participate in a 403(b). However, employers can restrict access based on such factors as hours worked. Check with your employer for details.

Tax-Sheltered Annuities (TSA)
The 403(b) is also known as a tax-sheltered annuity, but this is an outdated expression. It can give the impression that participants can only invest in annuity products, which was the case when section 403(b) was first added to the IRS code. However, since 1974, participants have also been able to invest in mutual funds through a 403(b)(7) custodial account. Throughout this site “the 403(b)” will refer to a 403(b) plan allowing investment in both annuity products and mutual funds.

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