Employees of private companies may turn to 401(k) plans to help build their retirement savings. If you’re a school teacher or work for a tax-exempt organization, a 403(b) retirement plan may help provide additional support to reach your retirement goals.
403(b) Plans Are Designed for Employees of Public Schools, Hospitals and Churches
Who’s eligible for a 403(b) plan?
Tax-deferred 403(b) plans are designed for employees of public schools, colleges and universities, and churches. Employees of certain tax-exempt, non-profit organizations, such as charities and some hospitals, also may participate in a 403(b) retirement plan – which is also known as a tax-sheltered annuity or tax-deferred annuity.
Why make 403(b) contributions?
A 403(b) retirement plan lets you put a portion of your salary into an employer-sponsored plan to help you save for retirement. Some employers may also match your contribution. That’s like getting free money for participating in your retirement plan.
You don’t pay taxes on what you contribute or any earnings you may accumulate until you withdraw the money – ideally, when you’re retired and you may be in a lower tax bracket.
Seek professional advice
With a 403(b) retirement plan, you can typically invest in fixed annuities, variable annuities or mutual funds. Check with your investment professional to help you choose investments that best meet your retirement objectives. Remember that investing involves market risk, including possible loss of principal, and there's no guarantee that your investment objectives will be met.
Enrolling in your employer’s 403(b) retirement plan is a big step in preparing for your future. You can even start small − the important thing is that you start investing now to give your money time to potentially grow.
Ask your retirement plan representative how to sign up. If your employer doesn’t offer a 403(b) plan, ask if they offer another kind of retirement plan. Ask your investment professional about other ways to start investing for retirement.
403(b) plan withdrawals
Because 403(b) plans were created to help you save for retirement, there may be stiff penalties for withdrawing money early, including:
- Income taxes on the total withdrawal
- A 10% penalty if you’re younger than 59½
- 20% federal income tax withholding unless the entire amount is rolled over to another qualified retirement plan or IRA