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What is a 403(b) Retirement Plan?

A 403(b) retirement plan is a tax-advantaged retirement savings option primarily designed for employees of public schools, certain non-profit organizations, and some members of the clergy. This plan allows participants to contribute a portion of their salary into a retirement account, which then grows tax-deferred until withdrawal, typically during retirement.

Key Features

  • Tax Benefits: Contributions are made pre-tax, reducing taxable income, while investment gains grow tax-deferred.
  • Contribution Limits: For 2023, employees can contribute up to $22,500, with an additional catch-up contribution of $7,500 for those aged 50 and over.
  • Investment Options: Often includes mutual funds, annuities, and sometimes individual securities - providing flexibility in managing investments.
  • Employer Contributions: Some employers offer matching contributions, enhancing the retirement savings potential.

Withdrawal Rules

Withdrawals can be made penalty-free after age 59½, but early withdrawals may incur a 10% penalty, in addition to ordinary income taxes. Exceptions apply, such as for disability or medical expenses.

Conclusion

Overall, a 403(b) plan is an essential retirement tool for eligible employees, providing a way to build a secure financial future while enjoying significant tax advantages.

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