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5 Things You Should Know About Your 403b Account

As an educator, your 403(b) plan is your main retirement savings account. A 403(b) plan is a tax-deferred employer retirement plan that is similar to a 401(k). Education institutions are one of the few organizations that can provide these accounts for their employees. 403(b) plans are meant to benefit the employee and build retirement savings. Many educators rely on their state-funded retirement accounts to fully fund their retirement. Continue reading for 5 things you should know about your 403(b) account. 

How Contributions Work for Your 403(b) 

Contributions can be made by both the employee and the employer for a 403(b) account. Most contributions are pre-tax, meaning it lowers your taxable income for the year of the contribution. If the employee is under the age of 50, you can contribute a maximum of $19,500. If the employee is over the age of 50, there is a “catch-up” contribution that allows the maximum contribution to be increased by $6,500 for a total of $26,000. Employers contribute on behalf of the employee, typically matching a percentage of the employee’s contribution. 

How Withdrawals Work for Your 403(b) 

To withdraw any funds from your 403(b) account, it must be a permissible distribution. Permissible distributions include when the employee reaches the age of 59 & ½, has been fired from their job, dies, becomes disabled, or experiences financial hardship. When funds are withdrawn, all pre-tax contributions will be taxed at income tax rates. If your withdrawal is not permissible, you will have to pay income tax and a 10% early withdrawal penalty. 

 Investing Your 403(b) 

When you are contributing to your 403(b) account, the money can be invested into several different types of securities. The investment options for a 403(b) are similar to the options for a 401(k). The options include a variety of stocks, mutual funds, and bonds. Some plans allow the option to invest into an annuity. 

 403(b)s are Meant to Close Your Income Gap 

A retirement income gap is the difference between the income you had on your day before retirement and your actual retirement income. The issue is your state pension and Social Security may only replace a portion of your income. Your 403(b) account can allow your retirement income to be the same as your working income was prior to retirement. This makes retiring easier for educators so they do not have to delay retirement or take a part-time job to fill their income gap. 

You Have Control Over Your 403(b) Account 

403(b) accounts are structured to give the account holder control of their retirement savings, even when you switch to another district. You are able to transfer the savings to another employer plan or into a traditional IRA if you are leaving your job. You could also leave your account as it is and let the balance grow tax-deferred. How your 403(b) is managed is completely up to you! 

Your 403(b) is meant to be an asset to your retirement savings portfolio. As an educator, a 403(b) is your main employer retirement plan. Take control of your 403(b) by understanding how it benefits you and how you can get the most out of your account. 






 Investing involves risk and possible loss of principal. Each individual's situation is unique. Please consult a financial professional before investing.