As a nurse, planning for retirement is an important part of your financial future. And planning for retirement income is one of the most important parts. One plan you may have heard of is the 403(b) retirement plan. In this article, we’ll explore 403(b) retirement plans and how they work. We’ll also review some pros and cons of the 403(b) to help you decide if one aligns with your financial goals.
What is a 403(b) Retirement Plan?
A 403(b) plan is a retirement account for eligible employees of non-profit businesses and public schools. Other qualifying non-profit businesses may include hospitals and religious organizations. Eligible employees may include nurses, doctors, teachers and school personnel, and clergy. Often called a tax-sheltered annuity (TSA), the 403(b) is a qualified plan under the Internal Revenue Service (IRS) code bearing its name.
How does a 403(b) Retirement Plan Work?
A 403(b) plan allows eligible employees to save for retirement through payroll deductions. These contributions are elective deferrals. Employees can choose a percentage of their salary or a set dollar amount for their contributions. Contributions are taken out of your check before taxes. This can help reduce taxable income. Also, any earnings grow tax-deferred. This means you pay taxes when you withdraw the money.
Contributions and Limits
403(b) plans come with annual contribution limits set by the IRS. As of August 29, 2023, employees can contribute up to $22,500 yearly. However, individuals aged 50 and older can make catch-up contributions. The allowable catch-up contribution for 2023 is $7,500. This brings the total allowable contribution for employees 50 and older to $30,000. Some employers may offer matching contributions up to the IRS limits. For example, your hospital may match your retirement contributions, up to 3%. This is free money to you.
Pros and cons of a 403(b) Retirement Plan
Like any retirement plan, a 403(b) plan has its pros and cons. Let’s explore them.
Tax benefits
Contributions to a 403(b) plan are pre-taxed. This can help reduce your taxable income. Also, your investments can grow tax-deferred until you withdraw money.
Employer Matching
Some employers may offer matching contributions to the plan. This aims to grow your retirement savings.
Automatic contributions
Contributions to a 403(b) plan are automatically taken out of your paycheck. This can help make saving for retirement easier and more convenient.
Cons
Limited Investment Choices
The available investment choices within the 403(b) plan may be limited compared to other retirement plans, like a 401(k).
Withdrawal Restrictions
Withdrawals before age 59 ½ are subject to certain IRS restrictions and penalties. However, disability and eligible medical expenses are excluded.
Fees
Some 403(b) plans may have high fees. These may include surrender charges and administration fees.
Investment Risks
While 403(b) plans offer diverse investment choices, they also come with risks. It’s important to understand the risks associated with your chosen investments. Consider speaking with your Human Resources Department or a Financial Advisor for more information.
Conclusion
A 403(b) plan is a retirement account designed for certain employees of public schools and other tax-exempt organizations. Nurses are eligible employees if they work for a non-profit employer who offers a 403(b). 403(b) plans aim to help eligible employees save for retirement through pre-tax payroll deductions. Some employers may also offer matching contributions. A 403(b) retirement plan may be a valuable tool for nurses looking to establish their financial future. Consider speaking with your Human Resources Department or a Financial Advisor to find out if a 403(b) plan aligns with your goals.
Disclosure
These concepts were derived under current laws and regulations. Changes in the law or regulations may affect the information provided.
Georgene Collins, RICP®, RN, PhD, MBA is a registered nurse turned Financial Advisor at Airey Financial Group. Georgene helps other nurses take control of their finances and prepare for retirement. Georgene began her career with Airey Financial Group in 2017 after retiring from 30 years in healthcare.
Georgene holds the Retirement Income Certified Professional (RICP®) designation from The American College of Financial Services. She holds health and life insurance licenses and a long-term care certificate in Indiana, Illinois, and Wisconsin. Georgene is a Registered Representative and Investment Advisor Representative and has earned the FINRA Series 63 and 65 registrations.
