Updating 403 b plan
A 403(b) plan is a tax-deferred retirement savings account offered to employees of nonprofit or 501 (c)(3) organizations, including public schools, hospitals, museums, churches and charitable organizations.That's a lot of code (and these plans are literally named for their tax codes) but it's easier to think of the 403(b) plan as a 401(k) for the nonprofit sector.Whereas public employers do not have to offer 401(k) plans to their employees, all full-time nonprofit employees are eligible to participate in a 403(b) plan.
That's because some 403(b) plans invested in annuity contracts. Some annuities offer a fixed amount of interest guaranteed, others offer an amount that will vary with investment returns.
But annuities can be more expensive than traditional mutual fund investments, and the penalty fees can be steep if you withdraw your money early from an annuity. Today, many 403(b) plans offer participants the option to invest in mutual funds through custodial accounts, just like you would find in a 401(k) plan.
This can really reduce your total savings amount—and potentially put your retirement at rist—so careful consideration is recommended.
Regular contributions are taken out of your paycheck on a pre-tax basis, so you don't pay income tax on the money that you contribute.
Anytime you can lower your taxable income, you have the opportunity to lower the taxes you pay.