If you work for a tax-exempt organization, then you may be eligible to participate in a 403(b) plan. This is the type of retirement plan offered to teachers, nurses, and clergy members. While the contribution limits and tax-deferral benefits of a 403(b) plan work very much like a 401(k), these plans are different in two ways, and those differences can present a significant risk to your savings.
Where a 401(k) typically invests in mutual funds, a 403(b) plan can invest in either mutual funds or an annuity. Many teachers have been approached by annuity salespeople who offer them bonus money or income guarantees if they buy an annuity. The mathematical equations behind these benefits, however, make it difficult to know what you’re really getting into. Here is what you need to know before you buy.