If you work for a non-profit enterprise such as a school or a church, you won't be offered the chance to participate in a 401(k) plan, but you may well be offered a 403(b) plan. It can serve you well, helping you save for retirement in a tax-advantaged way -- but be sure to go about it in a sensible way. Here are five 403(b) rules to observe.

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Grab all the matching funds you can

Employers who offer 403(b) plans don't match employee contributions as much as those who offer 401(k) plans. If your non-profit employer does offer matching money, though, aim to contribute enough to collect the maximum in matching money -- because it's free, and guaranteed. A common employer match is 50% of the contributions you make up to 6% of your salary. Thus, if you contribute 6%, your employer will chip in an additional 3%. If you earn $70,000 and contribute 6%, or $4,200, your employer will add another $2,100 -- that's $2,100 of free money, a guaranteed 50% return on your investment.


Contribute a lot

Speaking of maximum contributions, 403(b) accounts can receive many more dollars each year than IRAs can. The contribution limit in 2016 and 2017 is $18,000 for most people, plus an additional $6,000 for those 50 or older, giving older savers a massive maximum of $24,000. For as secure a retirement as possible, sock away as much as you can. The following table shows how effective it is to make bigger annual contributions and to do so for as many years as possible.

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.

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Consider a Roth 403(b)

If your employer offers a Roth 403(b) plan, you may want to participate in it instead of in a traditional 403(b). With a traditional IRA, 401(k), or 403(b), you contribute pre-tax money that reduces your taxable income and, therefore, your tax bill for the year. So if you earn $70,000 and contribute $10,000 to a Roth account, your earnings drop to $60,000, letting you avoid being taxed on the $10,000 contribution. When you with draw the money in retirement, it's taxed as ordinary income to you. With a Roth account, you contribute post-tax money that doesn't deliver any upfront tax break. (Earnings of $70,000 and a $10,000 contribution? Your earnings remain at $70,000.) But you eventually get a big tax break when you withdraw from the account in retirement – because you get to take all the money out of the account tax-free if you follow the rules. So if you contribute $10,000 annually to a Roth 403(b) for 20 years and your assets grow at an annual average of 8%, you'll end up with $494,229, which you can enjoy tax-free! If you'd had to pay even a 15% tax rate on that, it would have cost you $74,000.

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Make smart investment choices

You will probably have a menu of investment choices for your 403(b) money, so you should choose options that are likely to grow your money at a good clip. Many 403(b) plans offer annuities, but they will very often not be your best bet, especially if they're variable annuities or indexed annuities, which often come with high fees, restrictive terms, and perhaps limits on how much you can earn. Remember that you can always shop for annuities on your own, outside your 403(b), and you can find better deals that way, with lower fees.

So what should you choose? Simple, low-fee index funds based on the broad market are usually a good bet. See if there's an S&P 500 index fund available, or ask that one be added if it's not. It's a good standard menu option that will have your money growing about as rapidly as the overall U.S. stock market. It's also smart to diversify, perhaps adding an international fund.

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Don't cash out early or borrow from your 403(b)

Many workers these days don't stay at a job for too long, so when it's time to move on, they're tempted to cash out their 401(k) or 403(b) because it doesn't seem to have that much in it. Don't do that -- instead keep that money saved and growing. You may be able to roll the funds over into an IRA or into your next employer's retirement plan. Withdrawing the money can deliver a hefty early withdrawal penalty -- but worse, it mean that money won't be growing for you. Imagine, for example, that you cashed out a $25,000 account when you were 35. If it had remained invested and grew by an annual average of 8% for 30 more years until you were 65, it would have become more than $250,000, a rather meaningful sum. Likewise, don't borrow from a 403(b) account if you can help it, either, as that also hurts your financial future.

Take control of your financial future -- in part by making the most of your 403(b) account. Don't just leave everything up to chance and Social Security.