What is a §403(b) plan?

If you are employed by an educational institution, hospital, or certain other not-for-profit organizations, you may have the opportunity to invest in a tax-advantaged retirement program known as a §403(b) plan. By making regular contributions to a §403(b)/TSA account, you have a convenient means to enhance your retirement savings as you work toward building your financial future. 

How does a 403(b) plan work?
Your employer determines the provisions of the plan, including investment options and optional plan features such as the ability to defer to a Roth §403(b) or take a loan. You will decide how much you wish to invest each pay period, how your contributions will be allocated among the available investment options, and later, how your assets will be distributed. The Legend Group establishes the plan in accordance with your employer’s instructions and directs your contributions to the appropriate investments. Once you are eligible to begin withdrawing from your account, Legend distributes your funds as you advise.

What is the difference between Traditional 403(b) accounts and Roth 403(b) accounts?
With a traditional §403(b), contributions are made via pre-tax payroll deductions, and both contributions and investment earnings are treated as tax-deferred until withdrawal.1 Roth §403(b) accounts provide participants with the option to build tax-free retirement income. While Roth §403(b)s are funded with after-tax dollars, these accounts may grow tax-free, and all qualified withdrawals are tax-free.2 Contributions may be made to a Roth §403(b) account in addition to, or in place of a traditional §403(b) account, and your maximum annual contribution limit may be divided between the two accounts in any manner you wish.

1Distributions from a traditional retirement account are subject to ordinary income taxes in the year distributed. Distributions prior to age 59½ may incur an additional 10% penalty.

2In order for the Roth §403(b) account to be distributed tax-free, it must be funded for a minimum of five years and the account holder must have attained age 59½. A participant would also qualify for tax-free distributions if the account was held for five years and the account owner became disabled (under the strict definition of disability of §72(p) of the IRS code). Furthermore, in the event of the account holder’s death, beneficiaries would receive tax-free distributions if the account was held for at least five years. Otherwise, the distribution would be treated as part return of principal and part taxable earnings. A 10% premature withdrawal penalty may apply to the earnings. 

Do you have a question? Are you looking for more information?

We have answers. Our Financial Professionals have the skills, knowledge and experience to guide you in crafting and implementing an effective plan designed to reflect your unique investment and retirement goals – or simply answer any questions you may have. Let one of our Financial Professionals walk you through the process every step of the way and review which options are best suited for you to help you feel more secure and worry a little less.