Understanding Your 403(b)

Planning for retirement is a crucial aspect of your financial well-being, and one option available to many nonprofit employees is the 403(b) retirement plan. While many people are familiar with 401k plans offered by private companies, the 403(b) plan has unique features and benefits.   What is a 403(b)? A 403b plan is designed as a tax-sheltered retirement plan designed for employees of the public and nonprofits sectors, such as charities, schools, and qualified religious organizations. Similar to a 401k, a 403(b) enables you to contribute a portion of your salary to a tax advantaged retirement account.  Some employers may also provide matching contributions to 403(b) plans, meaning they will match a certain percentage of your contributions. Taking advantage of employer matching contributions can significantly enhance your retirement savings.   Tax advantages and Contribution Limits One of the primary benefits of a 403(b) plan is the tax advantages it offers. Contributions to a 403(b) account are typically made on a pre-tax basis, meaning that you won’t pay tax on the amount you contribute. This may help cut down on the income tax you owe for that year based on your top marginal tax rate. For example, if the last $10,000 of your adjusted gross income is taxed in the 22% tax bracket, placing $10,000 into a 403(b) may potentially save you $2,200 in taxes.¹ You can set aside up to $22,500 in a 403(b) in 2023 (increasing to $23,000 in 2024). Those 50 or older can make an additional catch-up contribution of $7,500 in 2023 and $7,500 in 2024.¹ In addition to the current tax savings, the money will also grow tax-free until you begin making withdrawals.¹   Investment Options and Portability 403(b) plans may offer various investment options, including mutual funds and annuities. It’s also worth noting that if you change jobs within the public or nonprofit sectors, your 403(b) can often be rolled over to a new employer’s plan or an IRA, maintaining the tax advantages.   Required Minimum Distributions (RMDs) Participants must start taking required minimum distributions (RMDs) at age 72. Understanding RMDs is essential to avoid potential tax penalties.   A 403(b) retirement plan offers a valuable opportunity for public and non-profit sector employees to save for retirement with tax advantages and potential employer matching.  By understanding how a 403b works, its contribution limits and employer match, you can make informed decisions to work towards a financially stable retirement. Our team at Sgroi financial has been assisting teachers with their 403(b) plans for over 50 years. We have worked with thousands of teachers, educators, and other school employees from over 100 school districts across New York state. Our team of experienced advisors will work in your best interest so you can strive for the retirement of your dreams. Learn how to get started today!  

1. The benefits of a 403(b) Plan (Investopedia, 2024)

  The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice.