403(b) Accounts - The Basics
403(b) accounts are pretty much universal in every school district as a retirement savings option for teachers. Another name you might hear a 403(b) go by is a tax-sheltered annuity plan (TSA). A good way to think of a 403(b) is that it is the misunderstood sibling of the 401(k). Very similar but with slightly different rules and only available to certain people that work for education and non-profit organizations. Saving with a 403(b) allows teachers to contribute pre-tax money from their paychecks for retirement and the money is invested in their account on a tax-advantaged basis, meaning no taxes are paid on the growth. And at retirement, taxes are paid on distributions from the account.
Instead, the money is taxed as income when it is withdrawn in retirement, at which point you can use it as you see fit. Like 401(k)s, some districts offer to match the money contributed, but it’s not a requirement and depends on the district. Most of the matching contributions I’ve see districts make are “vested” immediately, meaning if you leave the district, the money is yours and they cannot take it back. Most districts also have preferences on what representatives or vendors teachers can use to set up their 403(b) and will document this on an approved provider list.
On Tuesday, we'll cover tips for 403(b) accounts, but for now you can learn more by reading these articles:
Have more questions? No problem, we'd love to hear from you and discuss them!
Mychal Eagleson, CFP®, AAMS® is the President of An Exceptional Life Financial, a firm that specializes in financial planning for teachers and families with special needs. He frequently writes and speaks on personal finance topics relating to these clients. Mychal also serves on the board of the Financial Planning Association of Greater Indiana as the Director of Public Relations & Social Media. To read more of his articles and learn about An Exceptional Life Financial please visit: www.anexceptionallifefinancial.com.