403(b) Learning Lab

What is a 403(b) plan?

A 403(b) is like a 401(k) for educators & employees of non-profits

A 403(b) is a retirement savings account designed for employees of public schools & non-profit organizations exempt under Section 501(c)(3) of the Internal Revenue Code.  In addition to pubic schools, other non-profit organizations such as universities, hospitals, churches & libraries potentially offer their employees eligibility to participate in a 403(b) plan.

Benefits of a 403(b) plan

Benefits of a 403(b) plan

  • Control over your 403(b) savings amount. This means you can choose the amount with which you're comfortable starting & have your savings contributions automatically deposited to your account each pay period. You are even able to start, stop, increase or decrease the amount you are saving at any time without penalty.                                                                                    
  • Significant tax advantages for 403(b) plan participants, including both pre-tax contributions & after-tax "Roth" contributions. Pre-tax contributions to a 403(b) plan can help lower your annual income tax bill & earnings on these amounts are not taxed until they are distributed from the plan. After-tax "Roth" contributions go in as taxed & allow your investments to grow tax-free. Roth withdrawals are tax-free if you're over age 59½ & at least five years have passed since you established your Roth designated plan.                                                                                  
  • Compound interest. After a consultation, we'll build a custom tailored plan with a personalized investment strategy to work toward your retirement needs & goals. Compounding growth of your investments can provide powerful long-term growth potential that can make a meaningful impact on your ability to retire the way you envision.
  • Plan customization & guidance. We offer a wide array of investment options for your customized 403(b) plan that should be based on many factors including your individual risk tolerance & investment time horizon, as well as your projected retirement needs & goals. A customized plan can utilize custodial or advisory accounts with access to a wide range of mutual funds & specialized portfolio managers. Alternatively, plans could use an annuity offered through an insurance company, depending on your needs & focus on growth potential or safety of principal. However, annuities can have tradeoffs such as higher costs or growth caps that must be considered. After customizing & establishing your 403(b) plan, we offer continued guidance through periodic reviews with clients, & assist in making adjustments in investment strategy to fit the changes in your life or goals.                                                                                                                                                                                                                                     
  • Higher contribution limits than IRAs. The annual maximum amount of elective deferrals an employee can contribute to a 403(b) or Roth 403(b) is $22,500 in 2023 (participants age 50 or older may make an additional catch-up contribution of $7,500 for a total annual limit of $30,000 per year) compared to the non-employer linked Individual Retirement Account (IRA) or Roth IRA annual limit of $6,500 in 2023 with an additional $1,000 catch-up contribution available to participants age 50 or older.

Watch this short video from TRS of Texas on the importance of savings

The examples in this video are hypothetical and for illustrative purposes only.

The sooner you start to prepare, the better off you will be

Saving for your retirement can be like studying for an exam, the sooner you start to prepare, the easier it becomes & the better off you will be. Use the button below to schedule a free consultation & to start preparing for your future.

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Rollovers & Consolidation Benefits

Most school districts in the state of Texas will allow their employees to Rollover, Transfer or Exchange their retirement account funds from another company's custody, or from a previous employer's retirement plan(s). The term "Rollover" is often used as an umbrella term for all rollovers, transfers or exchanges, & is characterized by the transfer of assets or holdings of one retirement plan or account to another without creating a taxable event. Rolling over a 401(k), 403(b), or IRA might make sense when you change to a new job & want to move your previous employer's retirement account to your new employer's plan, want to move your account with a diffrent custodian within your current employer's plan, or if you decide you want to consolidate multiple accounts into one single plan.

When you consolidate your retirement accounts with McCaffrey Wealth Management, not only can we help you avoid overlaps & gaps in your overall investment strategy, but it can also make tracking your progress toward your retirement goals easier & more apparent. In addition to being able to offer a wide array of investment choices & strategies, MWM can make consolidation under a single financial advisor simple as well as provide guidance & clarity heading into retirement.

Distributions & Loans

403(b) plan participants are able to take cash distributions from their account, however they'll have to pay taxes on any amount that was not from designated "Roth" or after-tax contributions & if younger than age 59½ may have to pay an additional 10% early distribution tax unless an exception to this applies. Depending on the employer's plan rules, these exceptions can include: If you have separated from service after turning 55 or older; If you are permanently disabled; If you die & the funds are distributed to your beneficiary; If you are required by a court order to hand over money from the account to an ex-spouse or dependent; or If you have a qualifying financial hardship (including: Qualified unreimbursed medical expenses for you or your immediate family; Qualified higher education expenses for you or your immediate family; The purchase of a primary residence; Payments necessary to prevent eviction from or foreclosure of your primary residence; Qualified repairs of damage to your primary residence; Funeral expenses).

Some employer's 403(b) plans allow tax-free loans that enable participants to access a portion of their account if repaid within a specified time frame. Defaulted loan amounts not paid back on time will be taxed as ordinary income & may be subject to the 10% early withdrawal tax penalty if under the age of 59½.

Don't get held back.

Unfortunately, many educators are unaware of their 403(b) & retirement plan options, or may regard retirement planning as too complex & daunting. This often causes educators to either start their savings later, or miss out completely on many potentially rewarding financial opportunities. We hope to take the mystery out of retirement planning, investing, wealth management, & wealth preservation by helping you acquire the information you need to pursue your financial objectives. Our goal is to establish a long, & trusted relationship that allows you to live comfortably & focus on your passions during your working years & retire with confidence.

We welcome the opportunity to speak with you & will provide a free consultation to assess your financial needs & our ability to work together. Please contact us to schedule a meeting, or for your convenience, you can schedule online using the link below.

service@mccaffreywm.com   -   832-400-4688

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