The Beginner’s Guide to Understanding 403b Retirement Plans: Everything You Need to Know
Are you planning for your retirement but don’t know where to start? A 403b retirement plan might be the perfect solution for you. In this beginner’s guide, we’ll cover everything you need to know about 403b plans, so you can make informed decisions about your retirement savings.
What is a 403b Plan?
A 403b plan is a tax-advantaged retirement savings plan designed for certain employees of public schools, universities, and some nonprofits. These plans offer similar benefits to 401k plans but have special rules and features that are specific to nonprofit organizations. The contributions made to a 403b plan are typically tax-deferred, meaning you don’t pay income taxes on the money you save until you withdraw it in retirement.
How Do 403b Plans Work?
In most cases, your 403b plan contributions are made through automatic payroll deductions, which allows you to save a portion of your pre-tax income every pay period. Some employers also offer matching contributions, which means they’ll contribute the same amount as your personal contributions, up to a certain percentage of your salary. This can be a great way to boost your retirement savings.
What Are the Benefits of a 403b Plan?
One of the main advantages of a 403b plan is that it allows you to save money for retirement on a tax-deferred basis. This means your contributions are not subject to income taxes until you withdraw the money in retirement. Additionally, many employers offer matching contributions, which can help you save even more money for retirement.
What Are the Contribution Limits for 403b Plans?
The contribution limit for 403b plans in 2021 is $19,500 for individuals under age 50. If you’re over 50, you can make catch-up contributions up to an additional $6,500 per year. Additionally, some employers offer a lifetime catch-up provision, which allows long-term employees to contribute more money to their plans over time.
What Are the Investment Options for 403b Plans?
403b plans typically offer a range of investment options, including mutual funds, annuities, and other investment products. It’s important to review the investment options available within your plan and choose investments that align with your retirement goals and risk tolerance.
What Happens to Your 403b Plan When You Leave Your Job?
If you decide to leave your job, you have several options for your 403b plan. You can leave your money in the plan, roll it over to another tax-advantaged retirement plan, or cash out the plan. Cashing out the plan can result in taxes and penalties, so it’s important to consider your options carefully.
Conclusion
A 403b plan can be a great way to save for retirement if you work in the nonprofit sector. These tax-advantaged plans offer similar benefits to 401k plans and can help you save money on a tax-deferred basis. If you’re considering a 403b plan, be sure to review the plan’s investment options and contribution limits carefully, so you can make informed decisions about your retirement savings.
