Why It Pays to Know Your 403(b) Options Part 1

Vincent Scarsella

To some, the process of setting up a 403(b) retirement account can be a daunting task. However, with state pensions increasingly becoming non-existent, the 403(b) could be the best decision many teachers will make in regards to their retirement future. Sgroi Financial is here to assist you in making the process as simple and easy to understand as possible. In this two-part series, I will go over what a 403(b) is and how to set them up. In part two, I will talk about the variety of investment options available to you, what to look out for and what you should stay away from.

What is a 403(b)?

Simply put, a 403(b) is a retirement savings account similar to a 401(k). However, unlike the 401(k) this account is only available for employees of public education, cooperative hospital organizations and some non-profit employers. A 403(b) account, allows for tax-deductible contributions, as well as tax deferral of investment income earned within the plans.

Starting a 403(b)

It is important to begin this journey as early as possible, the younger you start, the more time you have to accumulate assets and increase the money going in. Just starting with $20/per pay can be a huge step in preparing for your retirement down the road. 56% of teachers begin their careers at ages 20-25, with 40 years or so until you retire, even by putting just $20/pay in, this could accumulate to over $60,000*.

How to set up a new 403(b)

You should first start at looking at the Vendor List provided by your school district; these vendors will range from insurance companies to independent financial institutions. Each offers a variety of different financial products in which you can invest (more on that in part 2). After you choose your vendor, it is important to schedule a meeting with the financial institution in which you chose. Here at Sgroi Financial, we will complete the process of setting up your Salary Reduction Agreement (commonly referred to as an SRA) on your behalf and inform you on the specific fees you will incur for investing.

Why do you need an advisor?

Contrary to the popular view, the main purpose of hiring a retirement plan advisor is not to pick funds or chase the highest rate of returns. It is the knowledge of the process by which investments are prudently selected and fiduciary standards are put into practice that makes a good 403(b) retirement plan advisor indispensable.

*This is a hypothetical example if you contributed $20/pay for 40 years at a 5% rate of return.

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