Category: Retirement

Retirement

What is a 403(b) Plan?

A 403b is a retirement plan offered by non-profit companies in which the employees contribute part of their salary with employers usually offering matching contribution.

403(b)
403(b)

Introduction

A 403(b) is a retirement plan offered by non-profit companies to their employees. Employees can contribute part of their salary to the plan, invest in various investing options, and let it grow tax-free until withdrawal time. Contributions to 403(b) are tax-free (up to an annual limit) which will lower your taxes.  On top of that, most companies provide matching contribution.

403(b) plans are usually available for public schools, government offices, healthcare agencies, and religious organizations.

Difference between 403(b) plan and 401(k) plan

For all practical purposes a 403(b) plan is very similar to a 401(k) plan. You can invest in a basket of mutual funds or bonds. However, there are some unique differences between the two as noted below:

Benefits of 403(b) over 401(k)

  • Shorter vesting periods
  • Option for additional contributions after 15 years of service

Drawbacks of 403(b) over 401(k)

  • Less choices of investment options
  • Less protection from creditors
  • Annuities and other insurance products may not be optimal choices for some

Final Verdict

For salaried people working in non-profit companies, contributing money to 403(b) account is one of the best way to save for retirement, get free-money from employers, reduce taxes and comfortably save for retirement.

The key is to start early, contribute regularly and let your money grow over time!

We hope the information in this post will be helpful in your journey of aspiring nirvana!

Is investing in 401(k) a good idea for Retirement?

A 401k is a retirement plan offered by companies in which the employees contribute part of their salary with employers usually offering matching contribution.

401k

Introduction A 401k is a retirement plan offered by companies to their employees. Employees can contribute part of their salary to the plan, invest in various mutual funds, and let it grow tax-free until withdrawal time. Contributions to 401k are tax-free (up to an annual limit) which will lower your taxes.  On top of that, most companies provide matching contribution.

Pros

  • 401k money grows tax-free until withdraw time post retirement, thus providing better returns compared to taxable account
  • Employer matching contributions are like free money
  • Contributions are automatically deducted from your salary
  • You will probably be in a lower tax bracket when you take money out during retirement

Cons

  • The 401k plan investment choices may have mutual funds with high fees
  • You will eventually pay taxes when you take the money out
  • There are early withdrawal penalties if money is taken out before retirement

I am not sure if I can save part of my salary

What if your employers offers you a 5% raise. Will you ever say No? Never!

That is effectively you are doing by not contributing part of your salary to 401k, assuming your employer matches your contribution. Even if there is no matching, you are still saving money on taxes while securing your retirement.

401k
401k

I am afraid of losing money in stock market

It is a valid concern!  Although no one can predict the future, US stock market has always bounced back after every crash.

Money invested in 401k is for the long-term retirement purpose. There will be short-turn bumps but if you stay the course and not panic, then you will come out a winner in the end.

Additionally, there are various strategies (Ex. Dollar cost averaging) to overcome unique risks to your situation that allows you to invest money in higher or lower risk options.

What happens to my money if I change jobs

When you change your job, you can:

(1) Rollover money from previous employer plan to new employer 401k plan

(2) Rollover money to IRA (Individual Retirement Plan)

Remember, 401k money belongs to you! You have full control over what to do if you change your job.

Action Items to start 401K

  1. Decide what percentage of your salary you can contribute to your 401k
    1. At a minimum, contribute to take full advantage of your company matching
  2. Work with your company HR to set up your 401k Account
  3. Select which mutual funds to invest in
    1. Start by investing in target-date funds as they choose allocation per your retirement age
    2. As you get comfortable, you may want to invest in a mix of Index Funds and Bond Funds
  4. Set up to automatically deduct money from you salary

That’s it! Sit back, relax and watch your money grow over time!

Final Verdict

For salaried people, contributing money to 401k account is one of the best way to save for retirement, get free-money from employers, reduce taxes and comfortably save for retirement.

The key is to start early, contribute regularly and let your money grow over time!

401k

We hope the information in this post will be helpful in your journey of aspiring nirvana!