Benefits of a 403(b) Retirement Account

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Benefits of a 403(b) Retirement Account

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The 403(b) is a tax-sheltered pension plan that is available to employees that work in institutions that have certain aims; education, literary, charitable, scientific, public awareness or similar purposes are served through these organizations.  The 403(b) plan allows the employees to contribute a certain portion of their salaries to this employer sponsored supplemental retirement account.

The 403(b) plan is similar to a 401(k) as their benefits resemble each other. However, the 403(b) plan benefits are specifically designed for non-profit entities; such as a school district.  The question arises why should one contribute to such a plan? It is a smart choice to choose 403(b) plan and to give you a brief idea about it, some of the top benefits affiliated with it are mentioned below:

Contributions are tax-deductible!

Saving yourself from hefty taxes is always desirable by almost any individual. With a 403(b), the contributions you make are deductible for federal income tax purposes. This means that you can contribute to your retirement plan without paying any tax on it. This reduces the amount of income tax paid and will help the employee get more benefits by saving extra cash.

Increase your savings tax-free!

Another big advantage is that the interest, dividends or gains on your contribution to the plan are not taxed until you start withdrawing them. This is yet another advantage that allows a 403(b) plan to be distinctive from normal taxable brokerage accounts.

You can easily rebalance your earnings more often by regularly scheduled contributions throughout a calendar year. Also, it allows you to focus purely on maximizing your savings for retirement.

Loans can be taken against your retirement plan!

Most people are eligible to take loans out of their 403(b) plans depending upon the provisions of their particular contract document of the employer. This tends to cater to the needs of the employee as unexpected expenses often arise throughout ones career.

However, necessary precautions must be taken when taking a loan from a retirement savings account as it may reduce the earnings you will need during retirement. Therefore, it’s advised that you consult a retirement advisor, accountant, account manager, or even an attorney to learn about the ramifications a loan can have on your account. With a few exceptions, loans taken from a 403(b) account must be repaid. Any unpaid loans may incur I.R.S. taxes and penalties.

Contribution Limits are much higher than IRAs!

In 2015, the I.R.S. allows contributions of up to $18,000 into a 403(b) account. Catch-up contribution limits are increased to $23,000! These annual limits enable an employee to amass a large account balance that can grow tax-deferred. The more money you save on tax-sheltered basis, the better prospects you’ll have after retirement!

However, no matter what retirement plan you choose, it’s always recommended that you become well educated about your options. It will not only allow you to maximize your earnings, but maximize your enjoyment during your retirement years as well!  To learn more about how a 403(b) may be right for you, contact our office to schedule a free consultation with one of our experienced Retirement Advisors.

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