Savings Account

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Definition / Meaning of

403(b)

Categories: Finance,

A 403(b) plan, sometimes known as a tax-sheltered annuity (TSA) or a tax-deferred annuity (TDA), is an employer sponsored retirement savings plan for employees of not-for-profit organizations, such as colleges, hospitals, foundations, and cultural institutions. Some employers offer 403(b) plans as a supplement to - rather than a replacement for - defined benefit (pension)s. Others offer them as the organization's only retirement plan.Your contributions to a traditional 403(b) are tax deductible, and any earnings are tax deferred. Contributions to a Roth 403(b) are made with after-tax dollars, but the withdrawals are tax free if the account has been open at least five years and you're 59 1/2 or older. There's an annual contribution limit, but you can add an additional catch-up contribution if you're 50 or older.With a 403(b), you are responsible for making your own investment decisions by choosing from among investment alternatives offered by the plan. You can roll over your assets to another employer's plan or an IRA when you leave your job, or to an IRA when you retire.You may withdraw without penalty once you reach 59 1/2, or sometimes earlier if you retire. You must begin required withdrawals by April 1 of the year following the year you turn 70 1/2 unless you are still working. In that case, you can postpone withdrawals until April 1 following the year you retire.