Jasz
VIP Contributor
So many people who work for schools, hospitals and non-profit corporations in the United States can't use a 401(k), the most ubiquitous type of retirement plan in the country. But they can use a similarly powerful retirement tool called a 403(b) plan.
A 403(b) is a private retirement plan available to employees of nonprofit organizations. It's named for Section 3(b) of the Internal Revenue Code, which says that employers "may make contributions" to such plans "only with respect to compensation" paid by them. Most employers don't contribute anything to these plans; instead, they allow employees to put money into their own accounts at their own discretion and pay tax on it when they withdraw it — usually at retirement age.
So why are these plans so popular? For starters, they're incredibly flexible: You can open one up whenever you want and leave it open forever if you like (or even after you retire). You also don't have to pay income tax on any contributions or earnings until retirement age — unlike 401(k)s or IRAs, which typically have early withdrawal penalties. And because contributions are made before taxes are taken out later in life.
A 403(b) is a private retirement plan available to employees of nonprofit organizations. It's named for Section 3(b) of the Internal Revenue Code, which says that employers "may make contributions" to such plans "only with respect to compensation" paid by them. Most employers don't contribute anything to these plans; instead, they allow employees to put money into their own accounts at their own discretion and pay tax on it when they withdraw it — usually at retirement age.
So why are these plans so popular? For starters, they're incredibly flexible: You can open one up whenever you want and leave it open forever if you like (or even after you retire). You also don't have to pay income tax on any contributions or earnings until retirement age — unlike 401(k)s or IRAs, which typically have early withdrawal penalties. And because contributions are made before taxes are taken out later in life.
