I teach at a school that offers a 403(b) plan. Is this type of plan a good way to save for retirement?

In general, yes. Also known as a tax-sheltered annuity, a 403(b) plan is an employer-sponsored plan designed for employees of certain tax-exempt organizations (e.g., hospitals, churches, charities, and public schools) to invest for their retirement. Typically, the employer purchases annuity contracts or sets up custodial accounts for eligible employees who choose to participate. A 403(b) plan is technically not a qualified plan, but it is said to mimic a qualified plan because it shares some of the same features.

Like a 401(k) plan, a 403(b) plan enables you to make contributions to the plan on a pre-tax basis. These are known as salary-reduction contributions because they come from your salary before taxes are withheld, thus reducing your taxable income. For tax year 2018, you are allowed to defer up to $18,500 a year or 100% of your compensation, whichever is less, to the plan. If you're 50 or older, you can make an extra "catch-up" contribution of $6,000 in 2018 (additional special catch-up contribution rules may also apply). Employers will sometimes contribute to the plan as well, although employer contributions are generally not required and (if made) may be subject to a vesting schedule before you are entitled to them. Earnings (e.g., dividends and interest) on your 403(b) plan investments accrue tax deferred. Only when you withdraw your funds from the plan do you pay income tax on contributions and earnings. If you wait until after you're retired to begin withdrawing, you may be in a lower tax bracket.

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