Teachers: Discover the 403(b)
This retirement plan allows teachers & employees of non-profits to invest for their futures.
Does your spouse contribute to a 401(k)? You are probably eligible for a retirement plan that can help you save and invest for retirement in the same way – a 403(b).
First offered in the late 1950s, 403(b) plans actually predate 401(k)s. School districts and non-profit organizations commonly offer these retirement savings vehicles to their employees.1
Contributions to most 403(b)s are 100% tax-deductible. Typically, you defer just a small percentage of your salary into these plans per paycheck, prior to taxes being withheld. Your contributions can be automated, and you can decide how you want the money you contribute to be invested. As with 401(k)s, some 403(b)s offer investments that attempt to reduce your risk exposure as you get closer to retirement age.2
Money saved & invested in a 403(b) can benefit from tax-deferred growth. Those dollars are only taxed when they are withdrawn. This yearly tax deferral may really help that money grow and compound.2
If you contribute $5,000 a year to a 403(b) starting at age 30 and the account returns 8% a year, you could end up with $394,772 by age 55. If you put $10,000 a year in your 403(b) beginning at age 30, the math says you could have $789,544 at age 55 at an 8% return. Think how all of that money could help you out in retirement.2
You can currently contribute up to $18,000 to a 403(b). In fact, you can contribute even more if you are 50 or older, for the IRS permits additional “catch-up” contributions to 403(b)s. The yearly contribution limit for those 50 and older is $24,000.2
Your plan may even offer a Roth option. As with a Roth IRA, contributions to a Roth 403(b) are made with after-tax dollars. As a result, contributions to a Roth 403(b) are not tax-deductible. The trade-off? You have the potential for tax-free withdrawals in retirement as long as you follow IRS rules. Tax-free retirement income is sweet, indeed.2
Are matching contributions common? Not usually. While employers have the option to partially or fully match employee contributions to both 401(k)s and 403(b)s, many school districts do not have enough funds available to offer a match. Some tax sheltered annuities may offer an interest bonus for every dollar you save for a certain period of time. But you can still use the 403(b) plan to put retirement money away for yourself. Why not do so?2
Saving for retirement should be on every teacher’s to-do list. The 403(b) gives you a way to do it, conveniently and consistently. If you aren’t yet saving for the future this way, now is the best time to start.
James Spicuzza may be reached at 727.939.9465 or by e-mail.
Learn more about James Spicuzza.
1 - nytimes.com/2016/10/23/your-money/403-b-retirement-plans-explained.html [10/23/16]
2 - fool.com/retirement/2016/09/20/7-frequently-asked-403b-questions.aspx [9/20/16]
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