While working Americans typically have 401(k) plans available to them at workplace, to help them save for retirement, those who toil for a range of non-profit organizations such as schools and churches are often offered 403(b) plans, instead. If your workplace-sponsored retirement plan is a 403(b), you may be wondering how safe it is and if you should participate in it.

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Should you participate in a 403(b) plan?

For most of us, the answer is absolutely. For one thing, 403(b) plans offer tax breaks while you save for retirement -- a critical thing to do, since so few of us have pensions to look forward to.

With a traditional 403(b) plan (as with traditional IRAs and 401(k)s), you contribute pre-tax money that reduces your taxable income and, therefore, your tax bill for the year. So if you earn $75,000 and contribute $10,000 to your account, your earnings drop to $65,000, letting you avoid being taxed on the $10,000 contribution. When you withdraw the money in retirement, it's taxed as ordinary income to you.

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Increasingly, 403(b) plans are offering Roth versions. With a Roth account, you contribute post-tax money that doesn't deliver any upfront tax break. (Earnings of $75,000 and a $10,000 contribution? Your earnings remain at $75,000.) But you eventually get a big tax break when you withdraw money from the account in retirement – because you get to take all the money out of the account tax-free if you follow the rules.

Meanwhile, just like with 401(k)s, 403(b) plans have relatively hefty contribution limits, allowing you to sock away a lot. The annual contribution limit for 2016 and 2017 is the same as for 401(k) accounts -- $18,000, plus an extra $6,000 for those 50 or older. That's much more than the limit for IRAs, which is $5,500 (plus $1,000 for those 50 and older) for both 2016 and 2017.

Check out how much money you can accumulate if you sock away the following sums annually and earn an average annual return of 8%:

Growing at 8% For:

$5,000 Invested Annually

$10,000 Invested Annually

$15,000 Invested Annually

15 years




20 years




25 years



$1.2 million

30 years


$1.2 million

$1.8 million

Calculations by author.

How safe is your 403(b)?

So how safe is your 403(b)? Well, it depends on what, exactly, you're asking. Will your money in a 403(b) be safe from market downturns? If you've invested some or all of it in mutual funds that are invested in stocks, then no -- if the market heads south, so will the value of your account. That's when inexperienced or naive investors might bail, instead of realizing that the market will always have occasional downturns, before recovering and going on to reach new highs. You may be able to invest in non-stock securities, but know that they may not grow your assets as quickly.

Next, is your 403(b) safe from your employer going out of business? Generally, yes -- because employers typically don't manage retirement accounts on their own, instead signing up with third-party administrators such as Fidelity or Vanguard. The money that's rerouted from your paycheck into your 403(b) goes to them, to manage in your 403(b) account. (Of course, if your plan administrator is Rick's Roadside Retirement Accounts and Tires, you might want to take a closer look into its trustworthiness.)

Here's how Fidelity offers assurance:

The assets of our customers -- whether in brokerage accounts, mutual funds, or other investment vehicles -- belong to them. These assets cannot be handled in any manner that deviates from stated investment objectives or brokerage agreements. As a provider of recordkeeping services for retirement plans, Fidelity's services are governed by federal law, which generally requires that defined contribution plan and other retirement plan assets be held in trust, segregated from an employer's or recordkeeper's assets. As a result, were a provider of recordkeeping services, such as Fidelity, or your employer to face financial issues, your account would be protected from creditors of the employer and the recordkeeper.

You can reduce your risks by choosing investments carefully. Image source: Getty Images.

When the word "safe" is dangerous

As you learn more about the 403(b) plan you can participate in at work, you might see that one of your investment options is a tax-sheltered annuity (TSA) -- and you might read somewhere or be told that it's a particularly "safe" option for you. Be careful!

403(b) plans have changed over their nearly 60-year-long history. They began as TSAs, offering participants little choice. Today, though, they increasingly offer a wider suite of investments, including many mutual funds -- just as 401(k) plans typically do. You'll often still see annuities among the menu options, though -- and you should learn much more about them before investing in them. Some of them can look "safe" because of features such as limiting or eliminating losses -- but they will generally provide that while also restricting your upside, such as by capping your gains. Thus, if the market has a blow-out year, surging 25%, your account may only grow by a few percentage points.

While "fixed" annuities can serve many investors well, you don't need a 403(b) to invest in one, and buying one outside a 403(b) plan can be more cost-effective. And other kinds of annuities, such as variable ones, can be quite problematic, charging steep fees that erode your gains and featuring restrictive terms and complicated fine print. Some can lose money, too, making them even less "safe."

403(b) plans can serve retirement savers well, but they're not without possible problems. Learn more about your investment options within your plan and be sure to choose low-fee investments that are likely to deliver growth (such as stock market-based index funds) -- or ask your administrator to offer them if they're not there.