While working in business, many companies offer retirement contribution plans. These are typically known as retirement accounts. Most commonly, you might have heard of 401k retirement accounts. However, these are only for professionals working the in private sector who may have a workplace pension. As an executive working in the public or non-for-profit sectors, a 403(b) retirement plan offer the option to put away money for retirement. Of course, the earlier you start saving, you will thank yourself financially later on.
403B Retirement Eligibility
Since the 403b plans are only available to people working in 501(c)(3) organizations, public schools or colleges and universities, you must be working in the non-profit sector. Since your organization cannot offer a scanlon plan or 401k contribution, the 403b works for nonprofits. Next, your employer must offer the plan to employees. Then, you must enroll to become eligible and start contributing to your retirement. If eligible, 403(b) accounts offer you the similar long term financial benefits as 401K accounts in the private sector.
The Right Type Will Pay Off
Typically, a 403 B retirement plan exists in the form of a contract or account. It can be an annuity contract that is administered by an insurance company. Or, it can be a custodial account that invests in mutual funds. Of course, there are some non-profit retirement plans that can invest in both. As a seasoned executive, you probably already understand the importance of diversification. When it comes to your retirement finances, be sure to choose the right type of annuity or mutual fund to suite your long term financial goals.
Flexible Contribution Ranges
Next, you financial situation can dictated the terms of your 403b contributions. You have flexibility to contribute as little or as much as you would like – with a maximum. In 2015-2017, the 403b contribution limit is $18,000 on a single salary. However, if you have not always contributed in the past or are over the age of 50, you may be able to make “catch-up contributions” that allow you to make more deferrals. In either case, you can tailor your contributions to your current financial circumstances too.
Save Tax Money On Investments
When it comes to investing regularly, you have to pay taxes. With a sponsored 403b plan allows you to defer paying taxes until retirement. In the meantime, your earned investment profits are compounded. As a result, your money will grow faster because the interest is being earned on a larger principle. Then, you can pay taxes on the amount of withdrawals you make during retirement. Keep in mind, at that age, you will probably be in a lower tax bracket too.
Use A 403b Account For Loans
In the future, you might find yourself needing some extra liquidity. It might be for personal or business funds. In either case, your 403b retirement savings can be borrowed against. Although the IRS requires loans to be less than $50,000 or half the account’s value, lenders can offer favorable interest rates and terms. Of course, you will have more negotiating power with firms like Guidant financial because there is security in your ability to pay the loan back with your 403b funds. Hopefully, you would be responsible enough to pay back your loan on your own and not deal with the 10% 403b distribution penalty.
When working in the public sector, 403b retirement plans are a smart investment. If sponsored and matched by your organization, you can save thousands of dollars in deferred taxable income. In addition, you have the chance to earn more investment returns. Of course, your executive experience might tell you that planning for the future financially will lead to favorable conditions down the road.
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