403B Retirement Plan: Is It For You

Although almost everyone has heard of the typical 401K retirement plan, even less people are aware of the Federal 403B retirement plan.  The 403B plan offers some lucrative potential, and should be invested in if the money can be at all spared.  Government employees such as teachers, school personnel, and librarians are usually eligible for benefits under 403B.  Although eligibility varies, the plan is typically targeted at assisting those in the educational field.  Some not for profit organizations are also eligible for benefits under the 403B plan.

The details of the plan are intricate, but tax exemption acts as the primary draw of the investment.  All contributions made to a 403B are set aside from Federal taxes until retirement.  In addition to the savings made on the investment itself, the total amount of tax paid is also reduced, as your whole pretax income will be lower.  This plan is available to the majority of people in any organization that qualifies under the IRS 501(c)(3) tax provision. 

Employers create an agreement with their employees to take out a set amount of their income each paycheck, reserving it for their 403B retirement plan.  The contribution is not taxed, and the overall pretax income of the paycheck is also reduced.  Despite pretax income reductions, FICA related taxes are not affected, leaving your social security benefits at the same level they would be without 403B.  The money is set aside, where a vendor of the employee’s choosing will ensure a certain rate of return.   

With the universal availability clause, almost all employees of a 501C eligible organization can invest.  Only those under 20 hours a week, or those already enrolled in a retirement plan can be denied participation.You can elect to put in up to $15,500 a year into the 403B plan or 100% of your compensation.  The deferral limit can be raised if the employer makes matching contributions, raising the cap as high as $46,000 or 100% of compensation (the lesser of the two). 

The 403B retirement plan is a worthwhile savings that every qualifying employee should consider.  The tax free contributions alone makes the 403B plan an worthwhile investment.  Should your employer offer matching benefits, that is all the more reason to start making investments.  If you are fretting about the security of your investment, check into fixed annuities.  With a fixed annuity program, your investment is guaranteed to maintain a minimum level of growth.  Monthly retirement payments are also guaranteed by fixed annuity insurance programs.