403b Tax-Sheltered Annuity Plans

Retirement is just around the corner, which for some may be a blessed relief, for others, a reason to panic. If you have prepared and not waited until the last minute, you should be in good shape to retire, and to enjoy that retirement. Many people invest in mutual funds and bonds, or simple IRA plans, such as the 401k. The 403b retirement plan is another investment vehicle provided for school employees, educational establishments and non-profit organizations. With this plan, employees can contribute a portion of their income to a company pool that invests in money markets, bonds, stocks and the like.

The 403b is a tax deferred retirement plan that grows until you withdraw it. Then, it is taxed as income. Investing in a 403 b will lower your taxes, and allow you to make roughly 25 percent profit on your investment after taxes. Your employer takes off your contributions to the fund from your paycheck, before taxes. And you can choose which investments you want for your portfolio. This investment will not affect your Social Security benefits.

However, you may not be eligible to share in this employee retirement program if you plan to invest less than $200 a year, so make sure you are aware of the eligibility rules when you are researching these annuity plans. Your total investment will control how much fees you will pay, and fees can range from 0.2% to 3%. A $100 investment, for example, would cost you 20 cents a year. There is a cap on the money you can invest, which is typically around $15,500 for the 2007 tax year. However, if you are 50 years old or older, you may invest an extra $5,000.

When investing with a 403b, find out ahead of time your investment choices and the annual fees you will pay. Also find out if you will have to pay a penalty for early withdrawal of funds. You will need to ask your employer for a list of participating investment companies to choose from. Above all, take the time to research your choices before investing. Find out performance and how much it will cost to invest with your choice. Then decide how much money you want to allot each month, keeping in mind that most companies require a minimum of $50 each month.

There are many questions that arise when it comes time to invest in your retirement, but knowing the basics of several different retirement plan options will stand you in good stead. Take the time to research and thoroughly understand the rules of any plan you choose, and be aware of all fees and penalties before you sign on that dotted line. If you have done your homework on your 403b plan, you can look forward to a financially secure retirement.

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