What is 403b?
A 403(b) plan, also known as a tax-sheltered annuity (TSA) plan, is a retirement savings plan available to employees of certain tax-exempt organizations, including public schools, hospitals, religious organizations, and nonprofit organizations. Similar to a 401(k) plan offered by for-profit employers, a 403(b) plan allows employees to save for retirement on a tax-advantaged basis. 403(b) plans provide valuable retirement savings opportunities for employees of certain nonprofit and tax-exempt organizations, helping them build a nest egg for retirement while enjoying tax advantages along the way.
Key Features of 403b:
- Employee Contributions: Employees contribute a portion of their pre-tax income to their 403(b) account, reducing their taxable income for the year.
- Employer Contributions: Some employers may also make contributions to their employees’ 403(b) accounts, either as matching contributions based on the employee’s contributions or as non-elective contributions.
- Tax-Deferred Growth: Contributions to a 403(b) plan grow tax-deferred, meaning that investment earnings are not taxed until withdrawn.
Difference between 403b vs. 401k
In navigating the realm of retirement planning, understanding the distinctions between various savings options is crucial. Two commonly discussed retirement plans are the 403(b) and the 401(k). These plans, while similar in some aspects, differ significantly in terms of eligibility, contribution limits, investment options, and administration.