Who Needs a 403(b) Plan, and How To Choose the Best for Me?

As a teacher or other employee of a non-profit organization, you're dedicated to helping others, shaping young minds, and building brighter futures. But have you thought about securing your own financial future? If you're not already enrolled in a 403(b) retirement plan, you might be missing out on a key opportunity for long-term savings. Here’s why a 403(b) is vital for educators and how you can choose the right one for your needs.

Why You Need a 403(b)

A 403(b) plan is similar to a 401(k), but it's specifically designed for employees of public schools, non-profits, and other tax-exempt organizations. Unlike a regular savings account, the money you contribute to a 403(b) grows tax-deferred, meaning you won’t pay taxes on your contributions or any earnings until you withdraw them, usually in retirement. Or, some 403(b) plans are of the “Roth” variety, meaning that your money grows and is withdrawn tax-free.

Teachers and other government employees often rely on pensions, but the truth is that many pensions aren’t enough to ensure a comfortable retirement. A 403(b) plan supplements your pension and Social Security, giving you the power to save more for your future. The earlier you start, the more you can benefit from compound growth over time.

How to Choose the Right 403(b) Plan

Not all 403(b) plans are created equal, and choosing the right one is crucial. Here are a few things to look for:

1. Low Fees: Fees can eat into your investment returns over time. When choosing a 403(b) plan, compare the fees of different providers. Look for plans with low administrative fees and reasonable expense ratios for their investment options. You may need to do some extra research - the plans with the highest fees often hide the true costs of their plans from potential customers. One website that may help identify the fees charged by different companies is 403bcompare.com.

2. Investment Choices: A well-rounded 403(b) should offer a range of investment options, from low-cost index funds to more actively managed funds. A good mix of stocks, bonds, and other assets can help diversify your portfolio and reduce risk.

3. Accessibility: Some 403(b) plans have high penalties or fees for withdrawing funds early (called surrender fees). Look for a plan with flexible withdrawal options, especially if you may need access to your funds before retirement. Surrender fees generally exist so that salespeople can receive their full commissions.

4. Provider Reputation: Research the financial institution offering the 403(b) plan. Are they well-known and reputable? Look for a provider with a solid track record and good customer service. For more information and honest, objective ratings of most existing plans, check out 403bwise.org. This site also maintains a database of which plans are offered by each school district. Enter your district here to see if it is included. If your school district offers 403(b) plans from one of 403bwise’s green-rated vendors, that would most likely be a good choice.

What Plans to Avoid

Be cautious of 403(b) plans with high fees, limited investment choices, or complex structures. Some insurance-based 403(b) plans are notorious for having high costs and subpar investment options. These are often sold through commissions, which means the advisor may not have your best interests in mind. Avoid annuity-based plans unless you're fully aware of their fees and terms. Lastly, if someone is in your school or district selling a plan, it is probably not a low-fee plan. You have to seek those out - part of the reason that their fees are low is that they do not pay salespeople to go out and sell their plan to unsuspecting teachers.

In Conclusion

A 403(b) plan is a valuable tool for teachers to secure their financial future. By carefully selecting a plan with low fees, diverse investment options, and a reputable provider, you can build a retirement nest egg that supplements your pension and provides peace of mind for years to come. If you do your research and still feel like you want some help, Venables Financial Solutions is here to help. We offer a service to help you choose and enroll in the best plan for you. If you learn that you are in a 403(b) plan that is not the best for you, the best time to choose a better plan is now. Secure your financial future today!