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What is a 403(b) Plan?

What is a 403(b) Plan?

October 08, 2019

In 1958, the Internal Revenue Service (IRS) created 403(b) plans to encourage employees of certain organizations to begin saving for retirement. Organizations eligible for participation in these plans are those “organized and operated exclusively for religious, charitable, scientific, public-safety testing, literary, or educational purposes.”


Although employees of qualifying organizations may be entitled to receive a pension at retirement, many find that pension proceeds are not as high as pre-retirement income. Contributions to a 403(b) plan can be a significant supplement to pension proceeds. Furthermore, 403(b) contributions are taken from gross pay and are made with pre-tax dollars, which can often mean that there is not a significant reduction in net pay. All funds in a 403(b) plan grow tax-deferred, and earnings accumulate without taxation until withdrawal. Withdrawals made before the age of 59½ may be subject to a 10% federal income tax penalty.


This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.


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