403(b) Plan

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Definition of '403(b) Plan'

A 403(b) plan is a tax-deferred retirement savings plan sponsored by an employer. It is similar to a 401(k) plan, but is available to employees of certain types of tax-exempt organizations, such as public schools, colleges, and universities, as well as certain government agencies.

Contributions to a 403(b) plan are made with pre-tax dollars, which means that they are deducted from your salary before taxes are calculated. This can lower your taxable income and may result in a lower tax bill.

The maximum amount that you can contribute to a 403(b) plan in 2023 is $20,500 ($27,000 if you are age 50 or older). Your employer may also make contributions to your 403(b) plan, up to a maximum of 100% of your salary.

The funds in your 403(b) plan grow tax-deferred, which means that you do not pay taxes on the earnings until you withdraw them from the plan. This can allow your money to grow faster than it would if it were taxed each year.

When you retire, you can withdraw money from your 403(b) plan in a variety of ways. You can take a lump sum withdrawal, or you can take periodic withdrawals over time. You may also be able to borrow money from your 403(b) plan, subject to certain restrictions.

403(b) plans offer a number of advantages over other retirement savings options. They offer tax-deferred growth, employer contributions, and a variety of withdrawal options. If you are an employee of a tax-exempt organization, a 403(b) plan may be a good option for you to save for retirement.

Here are some additional details about 403(b) plans:

* The 403(b) plan is a defined contribution plan, which means that the amount of money you have in your account at retirement depends on the contributions you make and the investment returns your account earns.
* 403(b) plans are subject to the same rules as 401(k) plans, with some exceptions. For example, 403(b) plans do not have to offer an employer match, and the contribution limits are slightly higher.
* 403(b) plans are administered by a variety of financial institutions, including banks, brokerage firms, and insurance companies.
* If you leave your job, you can roll over your 403(b) plan to another 403(b) plan, an IRA, or a Roth IRA.

403(b) plans can be a valuable tool for saving for retirement. If you are an employee of a tax-exempt organization, you should consider contributing to a 403(b) plan.

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