These days, there are all kinds of investment and savings
options available, and, as such, it can be difficult to determine which ones
are right for your particular needs and situations. One option that has been
getting a lot of attention recently is the 403(b). If you are considering this
particular choice, it’s important to understand what it is and how it works so
that you can accurately determine whether or not it’s a good fit for you and
your needs.
The Basics
A 403(b) is what is considered a tax-sheltered annuity. In
other words, it offers a way to save for retirement. It is designed
specifically for employees who work with smaller companies.
In some cases, employees are actually required to have a
403(b) plan in order to work with their company of choice, but this isn’t
always the case.
Those who do sign up for the plan will have contributions automatically deducted from their wages before taxes in most cases. Many people like the fact that, because of this, their contributions aren’t really noticeable; they don’t feel like they’re losing money and, instead, are just building up a nice little nest egg, little by little, each payday.
Annuities Vs. Mutual Funds
Another thing that people really like about 403(b) plans is
the fact that they have some choices in terms of where their money goes.
Typically, they can either choose annuities or mutual funds.
When going with the latter option, there’s a combination of
stocks, bonds and money market holdings involved. For the former, contributors
can choose between fixed annuities, equity indexed annuities, and variable
annuities. The option chosen will influence the interest rate.
Because so many options exist, people can easily choose the
403(b) plan that works for them and their needs. The key is just to choose a
low-fee 403(b).
Getting Your Money
Funds placed in a 403(b) plan are strictly for retirement.
That means that, as is the case with many retirement plans, there are penalties
involved if you attempt to take out your money early.
The general rule is that, in most cases, you will face hefty
withdrawal penalties if you take out money before you have reached the age of
59.5. However, there are some exceptions. For example, if you switch jobs, you
can roll over your funds. You can also make a withdrawal of elective deferrals
if you experience verifiable financial hardship. The same goes for those in the
reserves who get called up and those who become disabled.
Certain other exceptions do exist, so you can always check
with your financial adviser to see if your desired withdrawal qualifies for a
penalty-free exception.
403(b) Limits
Finally, keep in mind that contribution limits do exist with
403(b) plans. Currently, the limit on elective salary deferrals is $18,000. For
total contributions, the limit is either $53,000 or all employee compensation,
depending on which is lower. However, if you are over 50, you can make
“catch-up” contributions of as much as $6000.
As you can see, 403(b) plans are good options for many
people. The key is just to determine if such a plan will work for you and your
needs. If so, you can contact a financial adviser to help you get started, and,
if not, you can still contact a financial adviser to learn about other options
that may work for you.
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