403(b) 

The 403(b) is a retirement plan available to regular  P/T - F/T employees of public schools.  It is the non profit equivalent of a 401k.  Your school district may not match your contribution, however - the benefits are still solid. The largest benefit is that all of your contributions are sent from your check pre-tax.  Pre-tax savings lowers your taxable income, which may lower your taxes - on every paycheck and in April when you file, as your adjustable gross income has been lowered by whatever you saved for yourself.  You also get to control the amount you save for your future, and can change it monthly without restriction.  You may need the 403b to supplement your PERS/STRS pension income at Retirement.  The majority of retiring Educators today receive about 50% of their pre-retirement income from their pension, and need to supplement the remaining need from alternate savings vehicles.  Withdrawals are taxed as ordinary income in the year received. Tax penalties and penalties for early withdrawal may apply if funds are withdrawn prior to age 55 and separation from the employer you saved the funds under.

The maximum contribution for those under age 50 in 2023 is $22,500, for those over 50 you can add in an additional $7,500 under the catch up provision to reach a $30,000 total. However, starting in 2024 if your income is over $144,000, we will have to send that $7,500 to a Roth 403b. You can have both accounts ongoing - but the max contributions stated for over or under age 50 apply to all the 403b’s and Roth 403b’s you have open.

How a 403(b) is Different From your STRS / PERS Pension

Pensions, like CalSTRS in California, are formula-based retirement plans in which payout at retirement is based upon such factors as years of service, age, and salary. You do not control this, and contributions are mandatory for all regular employees.  Eligible employees are automatically enrolled in one of these plans upon employment. All investment decisions for these pensions are made by plan officials. 

 What You Should Know Before Opening a 403(b)

All investments carry with them a degree of risk. It is important to understand your tolerance for risk before investing. Those with low risk tolerance may be better suited to a conservative investing strategy that relies, for the most part, on fixed investments. Conversely, those with high risk tolerance may be better suited for more aggressive investments. It cannot be emphasized enough that risk tolerance is highly individualized: An investment strategy that is acceptable by one person may not be suited to another. Fixed investments, such as bonds, can be volatile and carry interest rate, inflation, liquidity and call risks.  As interest rates rise, bond prices usually fall, and vice versa.  Change in credit quality of the issuer may lead to default or lower security prices.  Any bond sold or redeemed prior to maturity may be subject to loss.

 My role with you and your 403(b)

This is where I come in.  I have been establishing, monitoring, and evaluating risk and investment suitability for my clients in their 403(b)'s for 15 years. Ensuring that your 403(b) assets maintain competitive earnings while outpacing inflation is important to me.  Your employer has a list of approved investment companies we can choose from, and once we have chosen an investment company for you, I will handle the paperwork to both your District and the Third Party Administrator as well as ensuring the investment account has been opened.  I keep you informed of new Investment Offerings on that list and offer diversification* suggestions when appropriate - if it's more suitable and potentially financially advantageous.  I do not charge a fee to you for my investment services in this capacity.  
 
One thing is certain: the more you know about yourself as an investor, and the more you know about investing and the workings of the 403(b) plan, the better prepared you will be to enjoy your financial future.  You can use the "contact me" link on this site to send me an email.

 Roth 403(b)

This is a provision that permits employees to irrevocably designate all or a portion of their 403(b) as an after-tax Roth contribution. This type of contribution will not lower the employee's taxable income. However, distribution of Roth designated funds in retirement will not be subject to taxation.  While it may be more financially advantageous for the majority of people to utilize the Regular pre-tax 403(b), a Roth 403b may be a great tool for those with unique circumstances in future income planning. Also, as noted above, folks who make more than $144K in 2024 and also save more than the $22,500 in their Traditional 403b will have to put the excess into a Roth 403b.

Participants have the option of making pre-tax 403(b) contributions, Roth 403(b) contributions, or a combination of the two. Total contributions cannot exceed the year's contribution limit. Not all employers offer a Roth 403(b), nor are they required to do so. Check with your employer for details.

 How a Roth 403(b) Is Different From a Roth IRA

The tax treatment of a Roth 403(b) and a Roth IRA is similar (after-tax contribution, tax-free withdrawal in retirement). However, the Roth 403(b) is an employer-based plan, while the Roth IRA is an individual-based plan. Distribution rules are different. Roth IRA contributions can be accessed at any time (earnings after five years or until age 59½, whichever is later). The Roth 403(b) can be accessed only with the occurrence of a distributable event (age 59½, separation from service, disability, or death).

 Neither the Lincoln Investment family of companies nor any of its representatives are affiliated with the Public Employees’ Retirement System (PERS), School Employees’ Retirement System (SERS), Teachers’ Retirement System or California State Teachers' Retirement System (CalSTRS); and PERS, , TRS and CalSTRS do not sponsor, authorize or endorse the retirement educational services described in this or other communications of Lincoln Investment.   *Diversification does not guarantee a profit or protect against a loss.