Why 403(b) Planning Matters for Your Future
403(b) plans are similar to 401(k)s. The fundamental difference is that only certain employers can offer a 403(b), including public schools, hospitals, and nonprofit organizations, as allowed by the IRS. Therefore, you can only invest in a 403(b) if your employer offers that type of plan.
Just like a 401(k), a 403(b) is a tax-deferred retirement investment vehicle, allowing you to make automatic and regular contributions. While you’re working, these contributions will lower your taxable income. But it’s not as easy as signing your name on a dotted line. Depending on how your employer set up the plan, you may invest in a Roth 403(b), too, and you may even borrow against the 403(b). There are a lot of investment options available inside your 403(b), and understanding the best options for your unique situation isn’t easy—that’s where I can help.
What to Invest In
With a 403(b), you have a myriad of investment options available to you. The IRS requires those options to be through mutual funds or annuities. Additionally, many employers in the Western NY area let you choose between dozens of providers. With my guidance, you can select the products that best serve your goals and needs.
Frequently Asked Questions
Unfortunately, there’s no way to know exactly how much your retirement plan is worth by the time you clock out at work for the last time. The variable you have the most control over is your contributions. The more money you contribute, the bigger your nest egg can become. I can help you calculate the expected size of your retirement fund by using past performance indicators of the type of investments you’re using to give you an idea of how your investments might grow in the future.
How much money you should have in your 403(b) by now isn’t as relevant as how much you will have by the time you need to make withdrawals. Most experts advise to save between 10% and 15% of your salary for retirement. If you get a late start on this, you can save more and take advantage of catch-up contributions.
How much you need to retire varies from person to person. It partly depends on how you picture your retirement. Traveling the world on a luxury cruise boat will certainly be more expensive than living in a home you’ve paid off. You may need between 60% and 100% of your final working years’ salary to make up for higher medical expenses and maintain your standard of living. It doesn’t have to all come from your 403(b), however. Besides Social Security income, you may also have an IRA or other pensions to provide for you in retirement.
With the complexities for 403(b) planning, it’s smart to work with a CERTIFIED FINANCIAL PLANNER™ practitioner to review your options. I will go over the plan prospectus or contract from your employer and dive into the different investment options, risk level and performance history. From there, I can use your investment objectives and risk tolerance to create an investment portfolio that helps you reach your goals.
How Do 403(b) Plans Work?
- Your employer determines the provisions of the plan, including investment options and optional plan features such as the ability to defer to a Roth 403(b) or take a loan
- You decide how much you wish to invest each pay period, how your contributions will be allocated among the available investment options, and later, how your assets will be distributed
- I will help establish the plan in accordance with your employer’s instructions and directs your contributions to the appropriate investments. When you are eligible to begin withdrawing from your account, I can assist with the distribution of your funds as you advise.
403(b) Plan Options
I can assist 403(b) plan participants with selecting and holding investments from multiple mutual fund families in one account. In addition, through Lincoln Investment, I can offer fixed and variable annuity options.
This means you can build your portfolio with a selection of nationally recognized mutual funds and/or annuities, all offered through a single investment provider. What’s more, this only requires the establishment of one investment provider agreement.
403(b) vs. ROTH 403(b)
- With a traditional 403(b), contributions are made via pre-tax payroll deductions, and both contributions and investment earnings are treated as tax-deferred until withdrawal. Withdrawals are taxed as ordinary income in the year received1
- Some employers also offer Roth 403(b) accounts, providing participants with the option to build tax-free retirement income. While Roth 403(b)s are funded with after-tax dollars, these accounts may grow tax-free, and all qualified withdrawals are tax-free2
- Contributions may be made to a Roth 403(b) account in addition to, or in place of a traditional 403(b) account, and your maximum annual contribution limit may be divided between the two accounts in any manner you wish.
Learn more about the benefits of a 403(b) plan.
12 Smart Reasons to Save for Retirement with a 403(b)Together, we’ll decide how much to invest each pay period and how those funds will be allocated. When it’s time to retire, I will help you decide how your assets will be distributed. Please let me know how I can help you navigate your 403(b) today to prepare you for your retirement journey ahead.
Contact me today to discuss your retirement account investment options 716-837-3335
CONTACT ME1. Distributions from a traditional retirement account are subject to ordinary income taxes in the year distributed. Distributions prior to age 59½ may incur an additional 10% penalty.
2. In order for the Roth §403(b) account to be distributed tax-free, it must be funded for a minimum of five years and the account holder must have attained age 59½. A participant would also qualify for tax-free distributions if the account was held for five years and the account owner became disabled (under the strict definition of disability of §72(p) of the IRS code). Furthermore, in the event of the account holder’s death, beneficiaries would receive tax-free distributions if the account was held for at least five years. Otherwise, the distribution would be treated as part return of principal and part taxable earnings. A 10% premature withdrawal penalty may apply to the earnings.
Diversification does not assure a profit or protect against market loss.
All investment options are subject to employer approval.