A 403(b) plan is a unique tax-advantaged retirement savings scheme that benefits employees working in public education. This scheme is also available to people on the payroll of specific 501(c)(3) tax-exempt organizations. These include hospitals, churches, libraries, religious, charitable institutions, and other non-profit entities. The individuals who participate in this scheme work as nurses, doctors, teachers, college professors, librarians, school administrators, and church officials. Under the 403(b) plan, they can save money for their retirement through payroll deductions and avail specific tax benefits at the same time.
Arbor Financial Melbourne – How does the 403(b)plan work?
Arbor Financial Melbourne is a leading name in the USA for investment securities. It is an SEC-registered investment advisory firm in America and is known for its qualified team of advisors and specialists in the field. The 403(b) Plan enables the participants to allow their employers to deduct a particular portion of their regular monthly remuneration. This is usually done before they become liable to pay taxes to the Internal Revenue Services (IRS).
Moreover, the participants’ monetary contribution is not subject to any taxes unless they make withdrawals from the retirement savings scheme. This reduces the overall tax liability they owe to the government. The employers then deposit the monetary contribution into a tax-efficient investment scheme of the employees’ choice for their retirement. The employers, on their part, make a matching contribution to their employees’ 403(b) plans to enhance the funds.
The participants can then invest the scheme’s funds into various lucrative financial assets. These include mutual funds, low-cost bonds, stock index funds, and annuities. However, they should remember that their investment options are not as extensive as under the private sector company employer-sponsored 401(K) plans. They cannot invest in stocks, real estate investment trusts (REITs), and exchange-traded funds (ETFs). The participants should also note they can make withdrawals under 403(b) plans only in the following circumstances:
- On their retirement at the minimum age of 59 ½ years
- On suffering from an unfortunate disability due to a workplace accident,
- On their deaths, in which cases their dependents become the recipients of the withdrawals, and
- On experience severe financial hardship.
The 403(b) plans participants should also keep in mind that the withdrawals they make will be taxable as an ordinary income receipt. When they opt for the 403(b) Roth version, the leaves become tax-free.
The benefits of participating in the 403(b) plans for employees of educational institutions, hospitals, and other non-profits organizations are as follows:
- The contributions and various earnings under the schemes are tax-deferred,
- They are eligible to claim tax credits on the donations, and
- The funds in the plans grow at a compounding rate over time.
The experts of Arbor Financial Melbourne believe that participating in 403(b) plans is a suitable way for employees of educational institutions and non-profit to invest for their retirement.
However, they should thoroughly read the fine line of the offer document and look into certain aspects of the plan like the contribution limitations, availability of low-cost funds, Roth options, and matching contributions.