How to Set Up a 403(b) Plan

If you work for an educational institution or nonprofit organization, you may be able to contribute to a 403(b) retirement plan. Funds that you contribute to a 403(b) retirement plan, as well as interest earnings, grow tax-deferred until you choose to withdraw your funds. With many benefits to investing in a 403(b) plan, it may be to your advantage to set one up early in your career.

Difficulty: Moderately Easy

Instructions

Things You'll Need:

• Position at an eligible educational or nonprofit organization

1. Determine if you are eligible to set up a 403(b) plan. 403(b) plans are popular among teachers as well as employees of schools and other qualifying nonprofit organizations. You may also be required to work a minimum number of hours or have specific citizenship status to qualify for a 403(b) plan.

2. Decide the type of financial products in which you would like to invest a portion of your salary. You can typically choose among various products, including annuities that are offered by insurance companies, mutual funds, stocks and bonds.

3. Select an investment company or life insurance company from the vendor list provided by your employer. Each of the vendors that allow you to set up a 403(b) plan offer different financial products in which you can invest. Certain products, such as mutual funds, may be available only from a specific vendor.

4. Open an account with your choice of vendor. Many vendors now allow you to complete this process online.

5. Complete a salary reduction agreement with your employer. The agreement specifies the amount that will be deducted from each of your paychecks and transferred to the vendor automatically.

6. Allocate your contributions to the 403(b) plan among different financial products. You must specify the proportion of your contribution that you want invested in each product.

7. Update your salary reduction agreement and investment allocations when appropriate. If you want to contribute the maximum amount, you must increase your contributions as the IRS changes the contribution limit. You can change your investments whenever your investment goals change.

Tips & Warnings

• If you are not eligible to invest in a 403(b) plan through your employer, other types of retirement plans may be available to you, such as 401(k) plans. The benefit administrator of your organization can tell you more about your investment options.
• The IRS specifies the maximum amount that you can contribute to a 403(b) plan each year.
• When selecting financial products, consider diverse products to minimize the risk to your investments.