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What Is a 403(b)?

Learn about 403(b) plans in this Howcast finance video with expert Gregory McGraime.

Transcript

A 403(b) is a type of retirement account that you may have through your employer if your employer is a non-profit. A religious organization, a charity, a school, a hospital and it works very similar to a 401k for a public company. Basically the way it works is that you can have money taken out directly from your paycheck and saved into the 403(b) for your future. With a pre-tax 403(b), the money comes off the top of your pay before taxes, it goes into the account and it's invested, and the only time you're going to pay tax on that money is when you actually retire and take the money out. Now, you may also have access to a Roth 403(b) option, and this works very similar but the tax benefits are different. With a Roth 403(b), you put money in today, and you get no tax benefit at all. But you get a big tax benefit later because all the money is invested, it grows and it all comes out tax free. Now the two big mistakes people make with the 403(b) accounts are first, they don't save enough money. Everybody watching should try and save a minimum of 10% to their 403(b) to make sure you're saving enough for your future. The second big mistake is people don't invest the money that's inside their 403(b) in a way that makes sense for their situation, based on their time horizon and their tolerance for risk. So make sure you do those two things with your 403(b). Make sure you're saving enough money and that you're investing that money appropriately for your situation.

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