Estimate the value of your 403(b) retirement savings
A 403(b) savings plan can be an excellent retirement asset for those eligible to participate the program. Conversely, it can be difficult to understand the full potential of your investment and using a calculator can ensure accuracy when planning for your future. By adding a few details about the payments you can make, you can quickly estimate your 403(b) earnings for when you retire. Using this tool you can design a savings approach tailored to your circumstances.
What is a 403(b) plan?
A 403(b) plan is a tax-advantaged savings account for employees of certain non-profit organizations. These accounts are similar to 401(k) plans except that they are intended for the non-profit sector. Any money you contribute to your savings plan will grow tax-free, along with your investment returns, until you retire.
However, unlike 401(K) plans, which are only available through some employers, 403(b) accounts are available to all full-time not-for-profit employees. Through a 403(b) plan you can invest in annuities (insurance policy investments), mutual funds (diversified stocks), or a combination of the two.
While there is some risk involved, 403(b) plans can be an exceptional investment for individuals that wish to use the earnings for income in retirement and the added advantage of income tax reduction can be appealing too. Delaying taxes on your investment can help your money accumulate faster and serve to maximize your savings potential!
Nonetheless, understanding the actual value of a 403(b) savings account can be challenging and having a calculator can help you assess the potential benefit from your plan.
Who can set up and participate in a 403(b) plan?
A 403(b) plan is available to any full-time employee in a non-profit organization, such as public school system employees (including those organized by Indian tribal governments), those in hospital service organizations, and civilian faculty of the Uniformed Services University of Health Sciences.
These plans are also available to church ministers in state-run prisons or armed forces, and employees of tax-exempt organizations under section 501(c)(3).
However, to set up a 403(b) account, you must speak with your employer or the association with which you are affiliated with to begin making contributions.
How can contributions be made to my account?
Your employer is the only person authorized to make contributions to your 403(b) account, which can be elective or non-elective payments and are subject to some restrictions. The IRS provides the guidelines on contribution limits, and the maximums are adjusted regularly for inflation.
Elective contributions permit your employer to withhold money from your paycheck, through a salary reduction agreement, for direct deposit into your 403(b) savings account. You won’t have to pay any income tax on these payments until you begin taking withdrawals, except for Roth contributions. Roth contributions are taxed when they are deposited in the savings plan to provide tax-free distributions in retirement.
Non-elective contributions are any tax-advantaged payments made into the savings account outside of the salary reduction agreement, which may typically include employer-matching contributions. These additions are offered as a percentage of the contributions you make, up to a certain ratio of your income. For example, your employer could offer to match 75% of your contributions up to a maximum of 10% of your annual salary.
Currently, employees can make elective contributions up to $18,000 per year, with an additional catch-up contribution to increase annual payments by $6,000 after the age of 50. While the total limit set out by the IRS for all contributions to 403(b) accounts, including employer matching is $54,000.
Any distributions taken from the account before the account maturity at age 59 ½ can be subject to a 10% penalty, in addition to regular income taxes.
How do I report contributions on my tax return?
You do not need to report your payments to your 403(b) account unless if they are Roth contributions. In all other instances, your employer is responsible for communicating your tax-deferrals to the IRS.
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What is this calculator for?
The 403(b) savings calculator is very simple to use and is designed to show you the full perspective of your savings account. This be can be helpful when planning for your future and can ensure the quality of life you deserve.
With your results, you can compare different account maturities and contribution limits to create a savings strategy that will meet your retirement goals. You can view your balance by year and include employer-matching contributions to get an accurate evaluation of your 403(b) account potential.
Please continue reading to learn more about 403(b) plans and a guide to using the calculator.
How to use the savings calculator
The 403(b) savings calculator consists of two parts: an information intake and a results section. Within the information intake are two subsections outlining your employee savings plan and your employer’s contributions. For an accurate report to be generated the system will need some information about your income and the payments you can make. Let us review this information together.
403(b) employee savings plan
Step 1: On the first line of the calculator, please indicate your annual salary and the percent of your annual salary to contribute to your plan (up to 20%) on the following line, using the arrow keys to make this selection easier.
Step 2: On the third line of the calculator you may add your current age, followed by your age of retirement on the next line of the calculator.
Step 3: Please add the current balance in your 403(b) account on the fifth line of the calculator.
Step 4: If you will be receiving any yearly salary increases, you should include that in the sixth line of the calculator.
Step 5: In the final line of this subsection you can indicate your annual investment fee, which is a designated percentage of your account balance. On average, investment costs can range from 1.4% on mutual funds up to 2.25% for variable annuities.
Step 6: Verify the data by referencing the smart prompt to the right of the inputs and continue to the next subsection.
Step 1: On the first line of this subsection you may identify what percentage of your contributions your employer will match, which can be up to 100%.
Step 2: Then on the following line you may indicate if your organization has set a maximum limit for their contributions to your account on the next line of the calculator. This figure is expressed as a percentage of your annual salary and can be set up to 20%.
Step 3: Verify the data by citing the smart prompt on the right-hand side of the inputs, and if correct, please proceed to your results.
Immediately below the information intake is a smart prompt summarizing the balance of your 403(b) savings based on the maturity you had indicated.
The first result tab, 403(b) savings, depicts the growth of your contributions and earnings before investment fees, using a line graph. You may clearly see the effect of compounding interest and the total value of your contributions. For more detailed information you can hold your mouse over any point on the line graph to get a reading of the account balance and your corresponding age for that instance.
More comprehensive information can be found on the next tab, 403(b) balance by year. Here you will receive a thorough summary of your account balance each year along with the specifics of the contributions. You can highlight any line items and evaluate the impact of your employer’s contributions.
With this vital information, you can assess the efficacy of your savings plan and test different contributions levels to see if you can reach your goals sooner. Since this calculator does not factor in the distribution of your earnings or the tax implications, additional calculations may be necessary to understand the actual value of your retirement income.