403b

A 403b plan is a type of retirement account offered by educational institutions, non-profit organizations and certain types of hospitals. This type of account is very similar to a 401k plan and allows employees to contribute to their own retirement using tax deferred money. However, the true definition of this type of account can be summed up by calling it a tax-sheltered annuity. In most cases, it is really no different than an annuity, but has the tax benefits outlined below.
The 403b was designed for employees to contribute into a retirement annuity option to bridge the gap between their current salary and their existing pension and social security. The goal is to maintain your current level of salary when you retire using these three income sources. Even moderate investments into your 403b over the course of many years may go a long way towards maintaining your income level.

403b Taxes

Investing in a 403b account is not tax free, but tax deferred. In other words you are able to save on taxes now, but will have to pay those taxes when you begin taking distributions out of your account after retirement. For most of us, this is still a method to save on taxes over the course of your life as you will most likely be in a lower tax bracket when you retire than you are today. If you are in a 25% tax bracket right now and you expect to be in a 10% tax bracket when you retire you will save 15% of every dollar you put away to finance your own retirement.

403b Investments

The investment options in 403b plans are generally more limited in nature. There are only two general options for most plan participants. The first of which is an annuity. The annuity option gives you a predetermined rate of return and the money will come to you in equal monthly payments for life once you retire. This is by far the most popular option. The other 403b investment option is mutual funds which are held by your 403b provider. Once you retire you can determine what to do with the money including converting it into an annuity.

403b Fees

An important aspect of the 403b plans is the fees. There are good providers and bad providers just like any other type of vendor. You want to make sure that the annual and “other” fees do not cut too deep into your retirement plan. There are also many different fees associated with cashing out your plan or even moving it into a different type of retirement account. You should understand these fees inside and out to make sure you are doing the best possible thing with your retirement dollar.

403b Providers

Unlike a 401k, often you have choices in which provider you will invest your money with. Your employer most likely has a list of their preferred vendors and you may choose the provider you want to work with. However, if you have a provider that has lower fees or better customer service, you can ask your employer to add them to the list. Most employers are more than happy to do so. For most of us, we can really work with any 403b provider we want to.