403B Retirement Plans - The Benefits of Government 403B Retirement Plans?

Pius Ephenus
September 29, 2009 — 1,331 views  
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Despite general knowledge of the 401K retirement plan, fewer are aware of the Federal 403B retirement plan. The 403B plan offers a number of great potential, and must be invested in if the money can be at all spared. Government employees such as teachers, school personnel, and librarians are frequently eligible for benefits under 403B. Though eligibility varies, the plan is typically aimed at helping folks in the educational field. Some nonprofits are also qualified for profit under the 403B plan.

The specifics of the plan can be complex, but tax exemption acts as the primary draw of the investment. All contributions made to a 403B are deferred from Federal taxes until retirement. In addition to the savings made on the contribution itself, the sum of tax paid is also reduced, as your sum pretax income will be lower. This plan is offered to almost everyone in any organization that are eligible under the IRS 501(c)(3) tax provision.

Employers create an agreement with their workers to remove a set amount of their income each salary, reserving it for their 403B retirement plan. The contribution is not taxed, and the total pretax earnings of the salary is also reduced. Despite pretax income reductions, FICA contributions are not reduced, leaving your social security benefits at the same level they would be without 403B. The money is set aside, where a vendor of the employee's choosing will ensure a minimum rate of return.

With the general availability clause, almost all employees of a 501C eligible organization be able to contribute. Only those under 20 hours a week, or those previously enrolled in a retirement plan can be denied participation. The not obligatory deferment limit for the 403B plan is $15,500 per year, or 100% of compensation. The cap on total investment can be raised if the employer makes the same contributions, increasing the cap to $46,000 or 100% of compensation (the lesser of the two).

The 403B retirement plan is a great investment that each qualifying worker must consider. The tax free contributions alone makes the 403B plan an attractive investment. Should your employer propose a matching benefits, that is all the more reason to start making investments. If you are concerned about the safety of your investment, research fixed annuities. Under a fixed annuity program, your investment is guaranteed to maintain a minimum level of growth. Monthly retirement payments are also guaranteed by fixed annuity insurance programs.

About the Author

Victor writes about investing for retirement in his blog. For informative articles about retirement plans go over to www.investingforretirements.com

Pius Ephenus