How a 403(b) Works


Sgroi Financial

It can become one of your best retirement savings vehicles.


If you’re a non-profit worker, chances are you are offered 403(b) plan to save for retirement. However, most retirement content focuses on more common 401(k) plans that most corporations offer. Though 403(b) plans are similar in some ways and serve the same basic purpose, it’s important to be aware of what makes 403(b) plans unique.1

A 403(b) is a great option for building retirement savings.

A 403(b) plan is a great retirement plan for individuals working for nonprofit organizations. It operates similarly to a 401(k) plan and comes with many benefits, such as being tax-deductible and tax-free, having the option of a Roth IRA, an employer match, and various catch-up contribution limits.2 You can defer a bit of your salary into the account each month, without impacting your lifestyle. That money has the chance to grow and compound greatly over the years.

A 403(b) lets you build wealth with tax deferral. 

This is so crucial. You won’t retire purely on the money you save for retirement; you’ll retire on the earnings from that money. The earnings on a 403(b) account aren’t taxed, so there’s no bite out of your investment return. The earnings will only be taxed when withdrawn from the plan. Still, there’s a decent chance you’ll be in a lower tax-bracket in retirement and of course you’ll have benefited from your money growing tax-free up to that point. 1

You can pay yourself before you pay Uncle Sam.

 Putting money in a 403(b) is a form of legal tax avoidance. Instead of giving up as much as 35 or 40 cents on every dollar to federal and state government, you can pay yourself first by simply putting dollars in a 403(b) account as those are pre-tax dollars.

Your employer might match some or all of your contribution. 

Some colleges and non-profits do offer a match. The match is usually around 50 cents for every dollar you contribute to the plan. However, if your employer is willing to match your retirement savings up to certain level, then that’s often a good deal. This is basically an additional benefit from your employer, and even if your 403(b) isn’t great, then saving up to the employer matching level may be worth considering.1

You could be eligible for a $1,000 (or even $2,000) income tax credit.

If you contribute to a 403(b) and your adjusted gross income (AGI) falls under a certain level, you may be eligible for the Savers Credit, a federal tax break of $1,000. If you are married and file jointly, the credit could go be as large as $2,000.

It doesn’t take much time to start a 403(b), and it may be one of the wisest financial moves you make. Please reach out if you have something on your mind. I look forward to speaking with you and helping you participate in the plan.


  1. Forbes com, 2022 
  2. Investopedia, November 24, 2021


The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. CopyrightFMG Suite.



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