A 403(b) plan is a retirement savings plan that is similar to a 401(k) plan, but is specifically designed for employees of non-profit organizations, schools, and certain government entities. The name “403(b)” comes from the section of the Internal Revenue Code that governs these types of retirement plans.

Employees contribute a portion of their salary to their 403(b) plan on a pre-tax basis, which means that the money is deducted from their paycheck before taxes are applied. This allows them to save for retirement while reducing their taxable income in the present. Contributions to a 403(b) plan grow tax-deferred, meaning that participants do not have to pay taxes on the investment gains until they withdraw the money in retirement.

One key benefit of a 403(b) plan is that many employers offer matching contributions, which can help employees grow their retirement savings even faster. These matching contributions are typically based on a percentage of the employee’s salary, up to a certain limit.

However, it’s important to note that there are restrictions on when and how the money in a 403(b) plan can be withdrawn. Generally, participants cannot access the funds in their 403(b) plan until they reach age 59 ½ without incurring a penalty. Additionally, once participants reach age 70 ½, they are required to start taking minimum distributions from their 403(b) plan.

In summary, a 403(b) plan is a valuable retirement savings tool for employees of non-profit organizations, schools, and certain government entities. By taking advantage of the tax benefits and possible employer matching contributions, individuals can work towards building a secure financial future for their retirement years.

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