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403b Plans Similar to 401k…But Different

403b plansMost everyone walking the earth in at least a semi-conscious state of existence has heard of a 401k retirement plan. And probably just as many have not heard of 403b plans, even though they’re quite similar. That’s okay. Heroic Investing is here to save the financial day. A 403b plan is essentially a tax-sheltered retirement plan that allows contributions to grow exempt from taxes until you begin withdrawals.

While 401k plans are designed for private businesses, enrollment in 403b plans is limited to those who work for entities like universities or other non-profit organizations. If you are in that category and still have not set up a retirement plan, what are you waiting for? The tax benefits alone make it crazy not to.

The primary benefit to 403b plans is that you pay no income tax on money contributed to the plan until you start taking it out, usually upon retirement. It works vice-versa if your plan falls under the Roth guidelines. In that case, you pay normal taxes on contributions but then nothing upon withdrawal. Whether saving it on the front or back end, not paying taxes is a Big Deal.

Which leads us to the second major benefit of 403b plans; earnings and gains on money in the plan are allowed to grow unencumbered by taxes until you start taking it out. No matter how crazy profitable your retirement investments might be – stocks, bonds, mutual funds, real estate – no taxes will be levied against the profit until you use it. That’s another Big Deal.

In this world of sketchy retirement plan promises, you should take advantage of a 403b plan if you can.

The Heroic Investing Team


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