What Is a 403(b) Plan?
Everyone knows that planning for retirement is important. When you first begin working the typical advice is to begin investing in your 401(k) plan. Some employers do not offer 401(k) plans. They may offer a pension or a 403(b) plan instead. A 403(b) plan for nearly all intents and purposes is about the same as a 401(k) plan. Nonprofits and other specific employers qualify for 403(b) status, which can save them money on the plan that they run. Just as with a 401(k) plan, you will have the option to choose to invest in conservative, middle or high-risk investments.
They may offer an employer match for your investments.
How Much Should I Contribute to a 403(b)?
The average goal for most people is to work up to investing fifteen percent of their income to retirement each year. The amount that your employer contributes for you will count towards the match. You can divide the match between your 403(b) and an IRA account. You will have more control over what you invest in with your IRA. You should always take full advantage of your employer match if you have one. This is basically free money for your retirement. When you are investing, you should invest in your 403(b) up to the full amount of the match, then max out your IRA contributions.
Once you have done that, you can invest in your 403(b) up to the fifteen percent goal.
- Start by contributing up to the match if you have one.
- Each time you get a raise increase the amount of your contributions.
- If you are paying off debt, increase your contributions once you have paid off the debt.
Should I Choose High Risk or Conservative Investments for My 403(b)?
When you are in your twenties, you can choose higher risk investments. The rate of return on these investments is higher than the conservative investments. When you are young, you can afford to ride out the market. This means you will have a chance to recover if the market drops. However, as you near retirement age, you should begin transferring your funds to more conservative investments. You can re-balance your 403(b) portfolio by talking to a human resources representative. It is important not to panic if your portfolio drops due to a market dip.
This is common and if you are several years away from retirement, your portfolio should have time to recover. It can be scary to watch it drop, but it should work out.
- Think about how much you are willing to risk and how long until you retire.
- Monitor your account, but try not to panic if the market dips.
- Be sure to adjust your portfolio as you get closer to
Can I Choose Between a 403(b) or a 401(k)?
Your employer will determine the type of plan that it offers you. This means you will not have an option to choose a 403(b) or a 401(k). The rules for the plans are basically the same. You can contribute the same amount to each plan each year. You have the same rollover rules, and similar rules when it comes to being vested in the plan. If you have the option to choose a Roth plan over a traditional, you should choose a Roth plan, because the money grows tax-free. You will have to pay taxes on your contributions, but it will save you money in the long run.
When you first start working, you will learn about the retirement options. You may have to wait a year to be able to sign up. In the meantime, you can start by investing in an IRA. This will allow you to start investing in retirement right away and stop you from losing investment time when you switch jobs. Most investment firms will allow you to open an IRA without a minimum initial investment requirement.
Should I Save for More than Just Retirement?
If you want to build wealth, you will need to save more than the money you put towards retirement each year. You should have regular savings goals that you set for yourself. These goals should include an emergency fund, a down payment for a home, and money for your children’s education in the future. After that you may want to save up for home repairs or your dream vacation. The goal is to move to cash for most of your major purchases. You may choose to invest in real estate or to put additional money in the stock market.
If you do this you will begin to build a positive net worth, and you can grow your wealth effectively.
- Make retirement savings a priority.
- If you plan on retiring early, you will need to build investments that you can draw on before you reach retirement age.
- Consider talking to a financial adviser to set up a plan that will allow you to reach your goals on your timeline.
What Happens If I Change Jobs?
Once you are vested in your 403(b) plan, you can take the money with you when you change jobs. You will likely need to roll it over in an IRA account. If you are not vested, you will lose your employer’s contributions, but you will keep the money that you have put into your retirement plan. Some employer’s will require you to rollover the account, others will allow you to stay with the current plan as long as you have a specific amount in the account. If you have any questions, your human resources representative should be able to answer your questions or connect you with someone who can.