Although almost everyone has heard of the typical 401K retirement plan, fewer are aware of the government 403B retirement plan. The 403B plan offers some great potential, and should be invested in if the money can be at all spared. Government workers such as teachers, school personnel, and librarians often qualify for benefits under 403B. Although eligibility varies, the plan is typically aimed at assisting those in the educational field. Some nonprofits are also eligible for benefits under the 403B plan.
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The specifics of the plan can be complicated, but tax exemption acts as the main attraction of the investment. All contributions made to a 403B are deferred from Federal taxes until retirement. In addition to the savings made on the investment itself, the overall amount of tax paid is also reduced, as your whole pretax income will be lower. This plan is available to nearly all workers in any organization that qualifies under the IRS 501(c)(3) tax provision.
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Employers create an agreement with their employees to take out a set amount of their income each paycheck, marking 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 contribution is entered into an investment account, where a vendor of the employee’s choosing will ensure a minimum rate of return.
Under the universal availability clause, the majority of employees of a 501C eligible organization can set aside money. Only those under 20 hours a week, or those already enrolled in a retirement plan can be denied participation. The elective deferral limit for the 403B plan is $15,500 per year, or 100% of 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 great investment that every eligible employee should consider. The tax deferral status alone makes the 403B plan an attractive option. Should your employer offer matching benefits, that is all the more reason to start making contributions. If you are worried about the security of your investment, check into fixed annuities. With a fixed annuity program, your investment is guaranteed to return a minimum. Monthly retirement payments are also guaranteed by fixed annuity insurance programs.
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