What Are Strategies for 403(b) Plans?
Navigating 403(b) plans can be daunting, but armed with strategies from top financial experts, this article demystifies the process. It delves into proven methods for maximizing retirement savings, selecting the best providers, and optimizing investment diversification. Empower your financial future with expert advice on keeping costs low and making informed decisions tailored to your retirement goals.
- Maximize Catch-Up Contributions for Retirement Savings
- Choose the Best 403(b) Providers
- Diversify Investments for Long-Term Growth
- Keep Expense Ratios Low
- Invest in Target-Date Funds
- Rebalance Your Portfolio Annually
- Consult a Financial Advisor
Maximize Catch-Up Contributions for Retirement Savings
A strategic approach that retirement plan administrators often recommend for employees at nonprofits or government organizations who participate in 403(b) plans involves making the most of the unique “catch-up” contributions feature. This strategy is particularly valuable for employees who are closer to retirement age and need to boost their retirement savings.
Maximizing Catch-Up Contributions: Employees over 50 have the option to make additional catch-up contributions beyond the standard contribution limit. For 2023, the standard 403(b) contribution limit is $22,500, and those over 50 can contribute an additional $7,500. However, for employees with 15 or more years of service at specific nonprofit or government employers, there’s an additional special catch-up allowance. This allows employees to contribute up to an extra $3,000 per year, up to a lifetime limit of $15,000. This is an often-overlooked opportunity that can significantly enhance retirement savings.
Strategic Long-Term Planning: Utilizing these catch-up contributions can drastically increase the compound growth potential of retirement savings, especially for those who may not have maximized their contributions in earlier years. It’s essential for employees to start planning their contributions to 403(b) plans as early as possible, but these catch-up provisions offer a valuable opportunity to accelerate savings as retirement nears.
Emily Tran
Finance Analyst and Management Specialist, Maple Worthy
Choose the Best 403(b) Providers
As a nonprofit and government worker, you can focus on three main strategies to make your 403(b) plan work for you. The first strategy is to look at different providers. Most regular workplace retirement plans only give one choice of company to manage retirement money. But 403(b) plans often let workers pick from several providers. This means employees can look around for better investment choices and lower fees that fit their needs.
Next, workers shouldn’t count only on their pension for retirement. Thoughtful planning means thinking about retirement money like separate containers: pension payments, Social Security checks, retirement account savings like 403(b)s, and leftover sick time benefits. Most people need money from these sources to keep living comfortably after they stop working. Putting money in a 403(b) helps build savings while reducing taxes.
Last, long-term employees should check if they can save extra money. Through a special catch-up rule, people who have worked at their organization for over 15 years can put away more each year. This helpful feature works for employees at public schools, hospitals, health services, and religious groups.
When workers need to withdraw money from their accounts or make changes, they’ll work with a Third-Party Administrator (TPA). While this adds another step, TPAs help manage accounts properly. Employee representatives can help talk to the TPA—it’s part of their job. By using these features of a 403(b), workers can build stronger retirement savings while paying less in taxes.
Eric Grogan
Estate Planning Attorney, Grogan Law, PLLC
Diversify Investments for Long-Term Growth
Creating a diverse investment portfolio is key to ensuring long-term growth with a 403(b) plan. By spreading investments across different asset classes, such as stocks, bonds, and mutual funds, one can reduce the impact of poor performance from any single investment. This approach helps manage risk and provides a more stable return over time.
It’s wise to make regular reviews of the investment selections to ensure they align with financial goals and market conditions. Taking action early to diversify can safeguard future earnings.
Keep Expense Ratios Low
Keeping expense ratios low in your 403(b) plan is a viable strategy to ensure more of your investments’ returns are preserved. High fees can eat into the earnings and diminish the overall growth of the retirement savings. Opting for low-cost investment options, such as index funds, can reduce these expenses.
It’s essential to periodically review the plan’s cost structure and switch to more affordable options if needed. Pay attention to fees to keep more of your hard-earned money growing.
Invest in Target-Date Funds
Investing in target-date funds is an easy and effective way to simplify the management of a 403(b) plan. These funds automatically adjust the asset mix as the target retirement date approaches, shifting from higher-risk investments to more conservative ones. This automated management helps to align the investment strategy with the individual’s retirement timeline.
Another benefit is that it reduces the need for constant monitoring and decision-making. Simplify your investment process by considering target-date funds for your retirement needs.
Rebalance Your Portfolio Annually
Rebalancing the portfolio annually is crucial to maintain the desired level of risk and return for a 403(b) plan. Over time, certain investments may perform better than others, causing the portfolio to drift from its original allocation. Annual rebalancing ensures that the portfolio stays aligned with the investor’s risk tolerance and financial goals.
This correction helps to optimize long-term performance and manage risk effectively. Make it a point to review and adjust your portfolio every year.
Consult a Financial Advisor
Consulting a financial advisor can provide tailored advice for managing a 403(b) plan. Advisors have specialized knowledge and experience to offer strategies that fit an individual’s unique financial situation. They can help navigate the complexities of retirement planning, tax implications, and investment choices.
Working with a professional can also bring peace of mind and confidence in the financial decisions made. Reach out to a qualified financial advisor to get personalized help with your 403(b) plan.
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