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| raspberry24 |
 Posted: Sun Feb 06, 2005 6:58 am Post subject: 403b plan |
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Member of the Month
May
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I am a teacher and trying to decide if a 403b plan is a better choice than the wroth IRA that I have. Does anybody know about what the pros and cons are of the 403b? Can I have both or will the gov. only allow you to have one?  |
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| Aladdin |
| Posted: Thu Feb 10, 2005 3:21 pm Post subject: |
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Investing Associate
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I found the following:
There are three advantages to investing in a 403(b) plan:
It can make your retirement more comfortable. Although benefits provided by CalSTRS can be substantial, particularly for career educators, they may not be sufficient to maintain your standard of living in retirement. For example, CalSTRS members do not earn Social Security benefits on their covered-service to supplement their retirement benefits. Saving in a 403(b) plan can help augment your CalSTRS benefits.
Saving in a 403(b) plan is a disciplined way to build a retirement nest egg.
Both federal and state law provide significant tax advantages to you if you save in a 403(b) plan.
There are three tax advantages to a 403(b) plan:
Contributions into the plan reduce your taxable income for the year it's contributed. As long as you don't exceed the pretax limit, your contributions are deducted from your pay before California and federal income taxes are withheld. You don't pay income taxes on this money until you withdraw it from your account.
The earnings credited to your account grow tax-deferred. This is a powerful tool you can use to help build your retirement nest egg. For example, if you save $1,000 in your 403(b) plan and earn $80 in interest, the entire $80 is reinvested in your account, helping your investments grow faster, because contributions and earnings in 403(b) plans grow tax-deferred. You will be required to pay taxes when you withdraw your contributions and earnings when you retire. Your income in retirement may be lower than while you are working, however, so your tax burden may be less.
If, however, you invested $1,000 in an after-tax investment account that earns an 8 percent annual interest, that money earns $80 a year. If your annual income is $50,000, putting you in the 28 percent tax bracket, you will have to pay taxes on your interest ($22), reducing your real return to $58.
You may be eligible to take a federal tax credit for amounts contributed to your 403(b) account beginning in 2002. The credit is up to 50 percent of the amount contributed (up to $2,000 in contributions), including contributions to a traditional IRA, Roth IRA, 457 plan or 401(k) plan,. The percentage of contributions that you can take as a credit depends on your adjusted gross income.
Haven't found anything on cons yet. |
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| raspberry24 |
| Posted: Sat Feb 12, 2005 4:48 am Post subject: 403b |
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Member of the Month
May
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| Thanks for the info. I have a Roth IRA and I have invested in a fidelity growth fund. The 403b has you choose annuties. What is the difference? |
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| noksagt |
| Posted: Fri Mar 11, 2005 10:42 am Post subject: |
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Member of the Month! March
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| 403(b)s are similar to 401(k)s in many ways. Without knowing more about youer personal situation, a reasonale rule of thumb is to contribute to your 40x(y) up to your employer match (which is a guaranteed return), then to your IRA up to the max, and then to msc out the rest of your 40x(y) past the matching. This might change based on your taxable income & the actual investments your 40x(y) plan offers. If you need to learn about annutiies, read the relevant section of the Invest FAQ. |
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