Easy Money: What is a 403B/TSA?
The 403(b), otherwise known as a TSA or tax-sheltered annuity, is what I like to refer to as “the teacher’s 401(k)”. Now, it’s not necessarily for teachers, but the two types of organizations that can have a 403(b) are nonprofits and school boards. That’s why usually if you’re a teacher it’s very likely that you have o have the option to get a 403(b). But principals, secretaries, administrators, superintendents, cafeteria workers can have them as well. They may also be available to hospitals and certain other nonprofits.
Now, if you’re wondering how a 403(b) works, just know that they work almost the exact same way as 401(k)s. The one big difference with the 403(b) is you’ll usually see multiple providers, meaning that you might have three, four, five, ten, or even upwards of 25 different providers with an employer. If there’s a really big school board, they can give you options by having multiple 403(b) providers. Usually, with a 401(k) you only have one provider, meaning you have to use whatever the company sets up for you and you have to hope that it’s a good plan. With a 403(b), you can actually shop at different companies inside of your plan, which is really nice.
The other thing with the 403(b) is if you want to take money out because there are different plans, you need a TPA, or a third-party administrator, to get access to your money. Now you might say, “Well, that sounds really complicated,” and that’s because it is. But you can call your employer and find out exactly who that TPA is to get access. Or even better, if you have a 403(b) agent or representative, just ask them to do it. That’s what they get paid to do.
Now, if you have a 403(b) and you work for a school board or a hospital, you might also have a pension. It’s pretty easy to say, “Okay, well I don’t need to contribute to my 403(b) because I’m already covered for retirement.” That’s not necessarily true. We like to call it “The Four Buckets” for people with pensions. You have your pension, you have your social security, you have some retirement savings, and then you usually have some unused sick leave. Those are your four buckets, and usually, you need all four of those to equal your retirement benefit. Now, for some of you, you’re right, you will be fine and you don’t need to contribute anymore if you don’t want to. But for other people, you might not be able to retire just on social security and your pension. You should consider contributing, particularly just to lower your taxes, if nothing else.
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