403B Advice
A 403b account is a retirement plan made specifically for government and nonprofit employees. These investment accounts typically invest in annuities and are sometimes referred to as "tax-sheltered annuities." Before you invest in one of these plans, you may want basic advice on how to use them to supplement any existing pension you receive from your employer.
Other People Are Reading
-
Contributions
-
Contributions to 403b plans are higher than for other types of retirement plans. Contributions to a 403b tax-sheltered annuity are the lesser of $49,000 or 100 percent of your total annual compensation for the year. These high contribution limits allow you to take advantage of saving more money for your retirement than you can do for other types of retirement plans like 401k plans or Individual Retirement Accounts, yet they offer the same tax benefits of pretax contributions and tax-deferred investment earnings.
Investment Options
-
Investment options inside of a 403b tax-sheltered annuity are normally mutual funds. However, a 403b annuity may also invest in a fixed or equity-indexed annuity. If it does, then the annuity earnings will be guaranteed in a fixed annuity or tied to the upward movement of a stock market index in an equity-indexed annuity. If the 403b is invested in a variable annuity, the performance of mutual fund investments determine the account balance. Only invest in mutual fund shares that you are comfortable with and understand. Research the funds in the prospectus you receive with your retirement account. The prospectus lists all of the investments in the account, the fund's investment objectives as well as who manages the fund and the costs associated with investing in the fund as well as the account itself.
-
Withdrawals
-
Withdrawals from a 403b may be made on a systematic, periodic or guaranteed basis. Systematic withdrawals allow you to keep your annuity as a savings and just make withdrawals from the account on a regular basis. These withdrawals are ideal if you want to keep your savings but still withdraw an income. Periodic withdrawals are withdrawals made as and when you need the money. These withdrawals are ideal for when you don't need additional retirement income but need emergency savings. Guaranteed payments are payments that last for your lifetime. These payments convert your savings to a monthly payment. You give up access to your savings, but get a payment that is higher than what would be possible under a systematic withdrawal scheme.
If you make withdrawals before age 59 1/2, you will be penalized by the IRS. The penalty is 10 percent of the amount withdrawn. The only exception to this rule is if you agree to take annual payments based on your life expectancy at the time of withdrawal. These withdrawals must continue for at least five years or until your age 59 1/2, whichever comes later.
Rollovers
-
If you leave your job or you retire, you may roll over your retirement account in lieu of taking the money through a withdrawal. A rollover moves money from your existing account to a new account. You may roll this money into an IRA, or even another 403b account. If your new employer offers a 401k plan and accepts rollovers, you will be able to roll the money into your new 401k plan. This option is ideal for when you leave your job but aren't ready to retire yet or you are ready to retire but don't want to take any money from your account.
-
