Contributions & Reviews
Your 403(b) gives you a way to build retirement savings through payroll contributions. Time, consistent saving, tax advantages, and the decisions you make along the way all play a role in what you build for retirement.
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The Power of Tax Deferral
With a Traditional 403(b), eligible pre-tax payroll contributions reduce your current federal taxable income. Those dollars remain in your account, where they have the opportunity to grow tax-deferred until they are withdrawn.
You contribute. Your savings have the opportunity to earn. Over time, those earnings can begin earning returns of their own. That is the power of compounding.
The Power of Time
Each contribution adds to what you are building for retirement. When your account earns returns, those earnings remain invested and can begin earning returns of their own. Over time, contributions and compounding can work together to build retirement savings.
Illustrative example only. Assumes $3,750 contributed at the end of each year for 30 years and a constant 6% annual return, compounded annually. The illustration does not include salary increases, employer contributions, fees, taxes, withdrawals, or changes in the contribution rate. Actual investment returns fluctuate and may be higher or lower. This illustration is not a projection or guarantee of future results.
Two Ways to Contribute
A 403(b) can allow Traditional and Roth contributions when offered through your employer’s plan. Both are designed to help you save for retirement, but the federal tax treatment is different.
Before-tax contributions
Reduce taxable income today
Traditional 403(b) contributions made through an eligible pre-tax payroll arrangement reduce your current federal taxable income. Contributions and earnings compound tax-deferred until withdrawn, and federal income taxes are generally due when money is distributed.
After-tax contributions
Pay taxes today for potential tax-free income later
Roth 403(b) contributions are made with after-tax dollars, so they do not reduce your current federal taxable income. Qualified distributions are received federal income-tax-free when requirements are satisfied.
The decision is not simply which one is better. It is which tax treatment fits the retirement strategy you are building.
Tax Deferral in Action
With a Traditional 403(b), eligible pre-tax contributions and their earnings remain tax-deferred while they stay in the account. That allows more of your retirement dollars to remain invested and participate in compounding over time.
Illustrative example only. Assumes $3,750 of gross annual income is available for retirement saving for 30 years, a constant 6% annual return, and an assumed 22% federal income-tax rate. The taxable example assumes current taxes reduce the amount invested and that investment earnings are taxed annually at the assumed rate. The Traditional 403(b) example assumes taxes are deferred until distribution and applies the same assumed tax rate at the end of the illustration. Actual tax treatment, investment returns, fees, and results will vary. This illustration is not a projection or guarantee of future results.
Reviewing Your 403(b)
A 403(b) review is about more than checking your account balance or investment performance. Your income, contribution amount, retirement timeline, and financial priorities change over time. A review gives you an opportunity to determine whether the decisions you made in the past still reflect where you are today—and where you want to go.
One of the most important questions to revisit is how much you are contributing. Increasing your contribution means more retirement dollars are being put to work—and those additional contributions have more time to compound.
A contribution increase does more than add additional dollars to your account. Those additional contributions also have time to participate in investment growth and compounding.
The purpose of a review is not to automatically increase your contribution. It is to determine whether what you are doing today still fits the retirement strategy you are building.
Illustrative example only. Assumes a $75,000 annual salary, contributions of 5% for the first 10 years, and a comparison between remaining at 5% or increasing contributions to 7% for the following 20 years. Both examples assume contributions are made at the end of each year and earn a constant 6% annual return, compounded annually. No salary increases, employer contributions, fees, taxes, withdrawals, or other changes are included. Actual investment returns and results will vary. This illustration is not a recommendation, projection, or guarantee of future results.
What to Review
Your contribution rate is important, but it is only one part of the account. A meaningful review can also look at tax treatment, account choices, risk, costs, beneficiaries, and how your retirement timeline has changed.
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Whether you are deciding what to contribute or reviewing a 403(b) you already have, we can help you look at your contribution rate, tax treatment, retirement timeline, and account choices together.
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