What is a 403(b)?

The 403(b) is a retirement plan available to employees of public schools, as well as to  employees of certain tax-exempt organizations. The 403(b) can be an excellent way to save money for retirement. Employees can make pre-tax contributions to a regular 403(b) account or post-tax contributions to a Roth 403(b). Employees may contribute up to $23,000 per year. Some employees may be eligible for a catch-up provision.

Easy, Direct Savings

• Your contributions are deducted directly from your paycheck and are invested in the funding track you choose. Automatic deductions help you save for the future.

Contributions and Earnings

• If you make pre-tax contributions, these contributions are considered tax deferred meaning you will not pay taxes at the time of contribution. Pre-tax contributions and any earnings are taxed only when you take the money out typically at retirement when you are in a lower tax bracket.

Supplemental Income

• 403(b) accounts can be used in retirement to supplement any pension or Social Security payments to help you enjoy your retirement years.

How a 403(b) Works

Employees enroll and participate through their employer. Contributions to a 403(b) are made on a pre-tax basis through a Salary Reduction Agreement. This is an arrangement where the participating employee agrees to take a reduction in salary. The amount by which the salary is reduced is directed to investments offered through the employer and selected by the employee. These contributions are called elective deferrals and are excluded from the employee’s taxable income. Contributions grow tax-deferred until the time of retirement, when withdrawals are taxed as ordinary income.

All 403(b) loan, rollover, hardship, and/or monetary disbursals need to be signed by a Plan Administrator. OMNI is our third party administrator for our 403(b) plans. Please send all applications to OMNI for Plan Administrator signatures. You can email applications to serviceprovider@omni403b.com or fax the applications to 1-585-756-5557, OMNI's phone number is 1-877-544-6664 for further questions.

Roth 403(b)

This is a provision that permits employees to irrevocably designate all or a portion of their 403(b) as an after-tax Roth contribution. This type of contribution will not lower the employee’s taxable income. However, distribution of Roth designated funds in retirement will not be subject to taxation.

What You Should Know Before Opening a 403(b)

All investments carry with them a degree of risk. It is important to understand your tolerance for risk before investing. Those with low risk tolerance may be better suited to a conservative investing strategy that relies, for the most part, on fixed investments. Conversely, those with high risk tolerance may be better suited for more aggressive investments. It cannot be emphasized enough that risk tolerance is highly individualized. An investment strategy that is acceptable by one person may not be suited to another.

It is also important to know that fees, operating rules, and investment objectives may vary greatly among product vendors and across investments offered by a particular vendor. Some investments impose surrender charges or restrictions on withdrawals. One thing is certain, the more you know about yourself as an investor, and the more you know about investing and the workings of the 403(b) plan, the better prepared you will be as an investor.