What is a 403b Plan? 403b Distributions & Contributions? Advantages & Disadvantages of 403b Plans

403b plans are retirement savings plans that allow you to make annual dollar contributions (just like 401k plans) and let them grow tax-deferred up until you withdraw them (upon retirement). Note the fact that 403b plans allow for pre-tax contributions (that is from your Gross Wage). Go here to read about the distinctions between pre-tax and after-tax 401k contributions. 403b plans are also known as tax-deferred annuities.

403b Plans are engineered for employees of tax-exempt organizations such as:

– Churches
– High schools, colleges & universities
– Museums
– Hospitals
– Other social & public welfare charities

Since your contributions towards a 403b plan come out of your GROSS WAGE, this means you will be lowering your current taxable income by the amount of the contribution. This means you will be paying lower taxes NOW!

Advantages of 403b Plans

– As mentioned above, your lower your current taxable income by contributing towards a 403b plan. This also allows your contributions to grow tax-deferred up until withdrawal. All the years of compounding interest will surely add up!

– When you retire, chances are higher that you will be in a lower tax bracket (because you will have quit your job). Therefore, apart from lowering your current taxable income, you also lower the taxes you will pay upon retirement (and maturity of your 403b plan).

– The 403b contributions are automatically deducted from your paycheck, therefore you have no worries about the administration of your contributions.

– 403b plans allow you to choose where your money is invested in. Go here to read more about 401k and 403b investment options.

403b Plan Contributions

The maximum pre-tax 403b contributions that you are allowed to make is $19500 in 2020.

Year Max 403b Contributions
2008 $15500
2009 $16500
2010 $16500
2011 $16500
2012 $17000
2013 $17500
2014 $17500
2015 $18000
2016 $18,000
2017 $18,000
2018 $18,500
2019 $19,000
2020 $19,500

403b Catch Up Contributions

Year 403b Catch Up Contributions
2008 $5000
2009 $5500
2010 $5500
2011 $5500
2012 $5500
2013 $5500
2014 $5500
2015 $6000
2016 $6000
2017 $6000
2018 $6000
2019 $6000
2020 $6500

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