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.
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!