Also referred to as a tax-sheltered annuity (“TSA”), the 403(b) plan is quite similar to a 401(k) plan and is offered to public school teachers and employees of not-for-profit organizations.
Like the 401(k), each employer determines the benefits of the 403(b) plan, including employer matching contributions, which along with employee salary reductions, are subject to maximums set by tax law.
A TSA can be established at any time during the year, but a salary reduction agreement must be executed by the employee before plan contributions can commence. The participant can choose to invest in a commercial annuity – fixed or variable – as an individual contract or as part of a group, life insurance or mutual funds.
Similar to a 401(k), the 403(b) participant often can borrow from their plan with strict repayment terms, is penalized for withdrawals before age 59.5 and must take minimum distributions the year after which they turn age 70.5. Some 403(b) plans allow penalty free distributions into other tax-qualified plans.
The investments inside your TSA must be actively monitored to ensure the asset allocation matches your long-term investment goals and the TSA account must be regularly re-balanced back to your target investment strategy.
Most employers approve a list of annuity and mutual fund investment produces offered by various investment companies for the employees to wade through. We can help you sift through these investment options and make the right choice for your personal retirement goals, priorities and risk tolerance.
