What is a 403b Account?
A 403(b) plan, also known as a tax-sheltered annuity plan, is a retirement plan for certain employees of public schools, employees of certain Code Section 501(c)(3) tax-exempt organizations and certain ministers. A 403(b) plan allows employees to contribute some of their salary to the plan. The employer may also contribute to the plan for employees.
- A 403(b) retirement plan allows your contributions to grow tax free until the member is eligible to retire under IRS regulations which presently is 59 1/2 years of age. There is a provision if you retire the year you turn 55, you are eligible to withdraw money from your 403(b) without penalty. As always, when a member withdraws money from a tax deferred account, taxes must be paid upon withdrawal.
- In 2015, the maximum contributions in a 403(b) account is $18,000 and $24,000 for members over 50 years of age.
- With the changes in the Rhode Island Pension System, members can control their financial future by contributing money into a 403(b) retirement plan as well as a traditional or ROTH IRA. A member can elect to participate in both.
- An effective question to ask, "Can I live on what I made last year?" If your answer is an emphatic YES, then take your annual step or contract raise and contribute to your 403(b) and/or IRA account. With the large step raises from Step 9 to Step 10 and Step 10 to Step 11, consider taking a large percentage of your raise to contribute to your retirement account.
- KEY THOUGHT TO CONSIDER: For every $1.00 you contribute to 403(b), only costs you $.72 because the amount of contribution reduces the amount of taxes you pay because it is pre-taxed (Assumption is 28% tax bracket). For every $1,000 contributed, the cost is $720.