Introduction to 403b retirement savings plan

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If you are like me and working for a hospital during your residency years, you probably have an option to open a 403b account. What is a 403b account? It is a retirement savings plan for “public educational organizations, non profit employers, self employed ministers” It is much like the 401 K and you are basically making before income tax contributions, and I believe that this also applies to state taxes as well. However, the 403b does not reduce wages for the purposes of determining FICA taxes and social security benefits. Another good thing about 403b is that all dividends, interest and capital gains accumulated in a 403b account is on a tax deferred basis, so you can rest easy about doing your taxes and save extra money too.

You can only take out your money from 403b without penalty when you reach 59.5 years of age or if you retire before 55 yo at which point you are eligible for substantially equal periodic payment or SEPP. You can also get your money if you become disabled as defined by IRS code 72(m)(7). You can also take money as a loan from your 403b (which I hope none of you will do). And finally, the money can be taken out when you die. You are also required to start withdrawing your money once you turn 70.5 years old (actually no later than april 1 of the year following your 70.5 years old day)

Another question some people have is what happens after residency? –> you can “rollover” your 403b into another plan. If you want to stick with your current brokerage company that is managing your 403b, then you just change the contributing party from your former employer to your new employer. If you are not working for an “educational instutition” that would allow a 403b you can move your money into a 401k. You can also roll over your 403b into an IRA. Another option is to just leave your 403b where it is.

Another questions is how the contributions will be taxed after everything is said and done: The payments that you recieve from the 403b are taxed as ordinary income at the time of withdrawal. So if you are retired and you withdraw money from your 403b at a rate of 50 thousand a year, the tax rate at that time for a person making 50 thousand a year will be the tax that you will be paying.

The bottom line : It definitely makes sense to contribute if your employer has a match. It makes sense even if you don’t have a match. For some residents, it may be hard to make ends meet with having a portion of your paycheck taken out. In another perspective though, if you are planning on getting started in the world of investments, it is great to get started with a 403b where you automatically come out ahead because you save money on taxes. So check out your employee benefits and get started.

Here is an excellent website for information on 403B called 403bwise

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