Benefits of Supplemental Retirement Accounts

The 403 (b) and 457(b) plans allow you to set aside a portion of your salary before federal and state income taxes are paid. This deferred salary (before-tax deductions) is placed into an investment account of your choice. Participating in an SRA allows you to delay payment of taxes on the money you invest and any interest that money has earned until later- usually at retirement.   

  • Decide how much to save (subject to the minimum and maximum deposit limitations).
  • Decide the type of investment vehicle to use for your deposits.
  • Increase, decrease, stop, or resume deposits any time you choose.
  • Select from a variety of settlement options upon termination. Your policy/contract may include these options and more:
    • An immediate lump-sum cash settlement  
    • An annuity settlement
    • Installments for a selected period
    • A survivor annuity
  • Designate a beneficiary for the death benefit related to your SRA. You also have the right to select an installment or annuity settlement  for the death benefit. If you do not make such a selection, your beneficiary has the right to make a selection.


Sample Benefit Calculation

[Your Pay] -  [Before-tax Deductions] = Taxable Income
[Taxable Income] – [Income Tax Withholding and Other Deductions] = Spendable Pay

 Example: Assuming $100/Month ($1200/year) Savings

Column 1 Heading With 403(b) Without 403(b)
Annual Salary (Gross Pay) $30,000 $30,000
Less 403(b) or 457(b) Savings - $1,200 N/A
Less Retirement Contribution (8%) - $2,400 - $2,400
Taxable Income $26,400 $27,600
Less Federal Tax* - $3,960 - $4,140
Less Medicare Tax - $435 - $435
Less After Tax Savings N/A - $1,200
Remaining Spendable Pay $22,005 $21,825

*Assumes federal tax bracket of 15%. Savings will be even greater for person in higher tax brackets. 

 

Annuity Contracts

There are two types of annuity contacts: fixed annuities and variable annuities.

The fixed annuities provide a guarantee of principal and a guaranteed rate of return. Fixed annuities also provide for fixed periodic payments at retirement and a specific rate of return for a certain period of time. At retirement, you can select from several payment options, depending on the investment contract or policy you have chosen. 

The variable annuities invest mainly in stocks, bonds, and money market funds and do not have a fixed rate of return or a guarantee of principal. The amount of money you receive at retirement or your monthly retirement payments will vary, depending on the investment performance of the fund. This type of investment relies on growth over a period of time to increase the value of the fund. There are no guarantees that your account will grow; the value of your account can go up or down with the investment performance of the fund.

Some of the companies offer a combination of both fixed and variable annuities. You may specify the percent or amount of each deposit that is to be invested in each account.


Mutual Funds

The custodial accounts available through the mutual fund companies are very similar to the variable annuity option described above.

The value of your account can go up or down with the investment performance of the fund.