By Denise Appleby
What Is a 403(b) Plan?
A 403(b) plan is a retirement plan for certain public school employees, employees of tax-exempt organizations and ministers. Individual 403(b) accounts are established and maintained by eligible employees.
Accounts under a 403(b) plan can be one of the three following types:
- An annuity contract provided through an insurance company; these 403(b) annuity plans are also known as tax-sheltered annuities (TSAs) and tax-deferred annuities (TDAs).
- A custodial account provided through a retirement account custodian; investments are limited to regulated investment companies, such as mutual funds.
- A retirement income account, for which investments options are either annuities or mutual funds.
Why Establish a 403(b) Account?
The following are advantages of maintaining a 403(b) plan or account:
For the employer:
- Attractive benefits that help keep high-quality employees happy.
- A shared cost of funding between employers and employees (in some cases, only employees contribute to the 403(b) plan).
For the employee:
- Reduced taxable income through pretax contributions,
- Tax-deferred earnings on plan contributions. If the contributions are made to a Roth 403(b) account, earnings can be tax-free.
- The likelihood of paying less tax on assets as distributions usually occur during retirement, when an employee may be in a lower tax bracket.
- The ability to take loans from the 403(b) accounts.
403(b) Plan: Eligibility Requirements
RetirementA retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers.
Financial AdvisorThis plan doesn't get as much attention as its more popular cousin - the 401(k) - but it has a lot of benefits for eligible investors.
RetirementMany folks do not understand the ins and outs of their 403(b) plan. Let's change that.
Financial AdvisorThese plans resemble 401(k) plans in many respects, but are specially designed for nonprofit entities.
RetirementRetirement is decades away, but if you make yourself start saving even a little now, all that time can make your money grow big time. Two smart options.
Managing WealthLearn about the two types of deferred compensation plans that nonprofit companies can use to allow high-ranking employees to increase their retirement savings.
RetirementThese plans aren't widely used, but they fill a specific niche for employees in certain situations.
Financial AdvisorEmployers establish qualified retirement plans to help their employees save money.
RetirementA defined contribution plan is a company retirement plan that specifies the amount of money contributed to it.