The Benefits of a 403(b)

A 403(b) is a tax-advantaged retirement program for employees of hospitals, educational institutions, and certain other not-for-profit organizations. 403(b) plans provide an outstanding means to maximize retirement savings. Investors may fund their accounts with pre-tax payroll deductions and both contributions and earnings may grow tax-deferred until withdrawal.

403(b) Plan Participants Enjoy These Benefits:

Pre-tax Savings — Participants who defer compensation into a 403(b) account realize immediate tax savings on their contributions. Before any taxes are taken out, your paycheck is reduced by the amount you decide to invest. Therefore your total taxable income is less.

Tax-deferred Growth Potential — Taxes on your investment earnings are also deferred. You needn't pay taxes on anything that your deferred compensation earns until you retire. For many people, that time is years away, allowing for long-term investment growth. Withdrawals are taxed as ordinary income, but many retirees find themselves in a lower tax bracket than when they were working. (A 10% penalty may apply for early withdrawal from a 403b account—i.e. before age 59 1/2 unless taking advantage of a 72(t) distribution.

Convenient Payroll Deduction with Built-in Dollar Cost Averaging — Investing in a 403(b) plan couldn't be simpler. You may decide to defer a certain percentage of your compensation each pay period to be invested in your 403(b) account. As this amount is automatically deducted from your paycheck at regular intervals, dollar cost averaging is built in to your investment plan.

Optional Employer Contributions — Your employer may elect to match a certain percentage of your 403(b) plan contributions. This participation incentive is money you receive above and beyond your regular salary. In fact, employer matching is like getting an instant raise.

Choice and Portability — Many investment options are available for 403(b) plans, including fixed annuities, variable annuities and mutual funds. This variety enables you to design a customized plan that suits your time horizon, risk tolerance and investment objectives. Also, your 403(b) account is portable. If you should leave your job, your account can be rolled into another employer's 403(b) program or an IRA.

Asset Management — Most 403(b) plan participants have access to professionally managed investment portfolios, with either insurance or mutual fund companies.

Loan provision — Loans are available from most 403(b) plans. Under most loan programs, both principal and interest are paid back to your account via automatic payroll deduction. This means if you meet your payment schedule on time, the loan is free! Check availabilty.

Distributions — 403(b) account assets can be withdrawn without penalty after age 59 1/2, even if you are still employed. Upon withdrawal, ordinary income taxes will apply. Distributions must begin no later than April 1 of the calendar year following the calendar year in which you attain age 70 1/2, unless you are still working. 403(b) plan participants who have terminated employment under the age of 55 may begin distributions through an IRS provision known as a 72(t) distribution. 

If you are considering Retirement Planning, call for a free consultation today.


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