Should You Contribute to an IRA or a 403(b)?

Public employees are given the opportunity to pay into a 403b plan. However, does this mean this kind of retirement plan is better than the traditional IRA? Are 403b plans too complicated, or does it make more sense to invest in an IRA?

Facts about the 403b Plan

Individuals who work for a non-profit organization, the government or a school may already hold this type of retirement plan. This particular pension plan works much the same as a 401(k) plan. Investors will only pay tax when money is withdrawn.

The 403b cash out rules are much the same as IRA withdrawal rules; however, there are a few exceptions. Those who retire at fifty five or above can withdraw money without being penalised.

The 403b plan has numerous advantages. For 2021 Plan holders can contribute up to $19,500 per year. Individuals aged fifty or more can add a $6,500 catch-up contribution. In effect, this allows investors to save more because the IRA contribution limit for 2021 stands at $6,000 or $7,000 for over fifties. It is important to remember, IRA contributions are matched by no one. In addition to this, account holders may be able to borrow money from their 403b plan whereas IRA account holders may not be entitled to do so.

403b plans appear to have many advantages, so why shouldn’t one contribute as much as allowed?

This type of retirement plan has numerous drawbacks. The plan is costly and investment choices are limited. Many plans offer variable or fixed annuities, so this can render them more expensive. Many people are reluctant to purchase an annuity as part of a retirement plan.

IRA plans offer numerous investment options. IRA plans are less costly to maintain and the investment can be altered as required. 403b Plan holders are unable to change their investments as easily.

IRA plans are more flexible. For instance, the plan offers heirs maximum flexibility. Under IRA beneficiary rules an individual is allowed to leave the retirement plan to someone other than their spouse.

The Drawbacks

403b plans may be the only retirement plans that allow deductible contributions. Plan holders (employer 403b plan) with a joint return income exceeding $89,000 will find their IRA contributions are no longer deductible. The plan doesn’t necessarily have to be active; anyone with an employee 403b plan whose income exceeds the limit will find IRA contributions are phased out. Here are some of the main facts:

. Those who have an employer match 403b Plan should opt in
. Couples with a joint income below $89,000 should take out an IRA after they receive the maximum matching employer contribution
. Couples with a joint income in excess of $89,000 should hold onto the 403b Plan

The Disadvantages of the 403B and the 401K

Both plans are limited. This is why many are keen to transfer their existing retirement plan into gold.

. Both plans are backed by paper assets. The 403b Plan and the 401K plan are affected by changes in the economy
. Participants in these plans are not in total control of their retirement assets. Employers often hire an account adviser to make investments and transfer funds
. Both plans have limited investment options. The plans commonly comprise of mutual funds, stocks and bonds
. Employees under 59 ½ years old will incur interest and heavy penalties for withdrawing funds from such plans

The 403b and the 401k are good savings plans, however, they have limitations. A sound retirement plan should be flexible. Everyone should have a diverse retirement plan with scope for growth. Gold is a less volatile investment, so savvy investors should look to protect their purchasing power with gold.

Transfer a 403b Plan or a 401K into Gold

The state of the world economy means many investors are converting 401k savings into precious metals. Investors who are keen to change should check the conditions of their current 403b or 401k plan. If the rule states precious metal investment is not permitted the funds may have to be rolled-over into a self-directed IRA. Some plans do not allow savings to be moved unless the plan holder is suffering financial hardship or leaving the employer.

Smart investors are putting physical gold and silver into their IRAS (Individual Retirement Accounts), so it is important to release the 401k or 403b Plan funds to create a diverse retirement portfolio. The global economy is facing increasing uncertainty and gold and silver are considered important additions to the 403b Plan and all other pension plans.

Author: Doug Young