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403(b) Plan: Conclusion

A 403(b) plan is a tax-advantaged retirement plan for public school and nonprofit employees and certain ministers. (L2) You and your employer decide how much to contribute to your account each year, subject to IRS limits. You then choose whether to invest that money in an annuity, mutual funds or both.

Saving money through a 403(b) may mean that your paycheck is smaller today, but this account helps you save faster for retirement than a regular investment account because of its tax advantages: you can contribute pre-tax dollars and your contributions grow tax free. You won’t pay taxes until you withdraw money in retirement, with a few exceptions. Older participants can make catch-up contributions to accelerate their savings, and if you have another retirement account with a former employer, you may be able to roll it into your 403(b) with your new employer.

403(b) accounts are designed to help you save for the future, so if you want to take money out before age 59½, you can only do so under a few circumstances without paying a 10% tax penalty. But you can’t leave your money in your 403(b) forever, either; you’ll have to start taking required minimum distributions shortly after you turn 70½ or possibly later if you’re still working and your plan allows it.