13

To start off, I'm very naive when it comes to these issues. I know virtually nothing about retirement funds.

I'm 24 years old, and currently in my second year of a gap between undergrad and PhD programs. My place of work offers the option to invest in a 403(b) retirement program.

Now, I plan on working in this position for roughly another year to a year-and-a-half. Would it be wise to begin investing into this plan? How does it work when I leave my current place of employment? Will I be able to continue investing in the account at a later date or is it essentially abandoned?

  • 3
    Yes! The earlier you start to save for retirement, the better! Compound growth is a powerful tool. – Rocky Apr 30 '18 at 16:45
  • 2
    Does your employer offer matching contributions on the 403(b) of any kind? If so, you are passing on literally free money if you don't. That's automatic guaranteed ROI. – Seth R Apr 30 '18 at 17:46
24

Would it be wise to begin investing into this plan?

Provided you have no other consumer/educational debt to take care of first, yes.

How does it work when I leave my current place of employment?

You own the investment even after you leave your employer (voluntarily or involuntarily). Most people will either roll it to an IRA account or to their new employer's retirement plan.

Will I be able to continue investing in the account at a later date or is it essentially abandoned?

It's not abandoned - you still own the account and can roll it into a different account, but you can't directly contribute to it anymore. You will either contribute to your new employer's retirement account (403(b) or 401(k)), or an IRA.

Also, since you admittedly don't know much about these plans, remember that they are designed for retirement, which means that there are significant penalties for withdrawing the funds prior to retirement age (currently 59 1/2). you can change investments within the plan as much as you want, and can roll it to a different retirement plan without paying tax.

Finally, it doesn't really matter right now what you invest in within the plan. Start to educate yourself on the different options (mutual funds, index funds, target-date funds, etc.), and when you know better what you want to invest in, you can "rebalance" your portfolio for a more long-term strategy. In other words, if you choose a less-than-optimal fund on day 1, you're not locked in forever, you can change it later. Since you will have at least 35 years for it to grow, just contributing as much as you can is MUCH more impactful today than choosing the "right" fund. Even if you change your funds in two years, you _still _ have 33+ years of growth that will more than make up for the 2 years of opportunity cost.

  • "roll it to a different retirement plan without paying tax" Well, as long as you don't roll a traditional into a Roth. Though given OP's situation, he's probably making little enough that he should strongly consider Roth to begin with. – Kevin Apr 30 '18 at 17:32
  • I had already upvoted this answer when it first posted but the last two paragraphs, added a little later, make this answer even more valuable. Since contributions to 403(b) plans, like contributions to 401(k) plans, are made via payroll deduction, the opportunity lost by not getting than money into a 403(b) plan is worth far more than the cost of making a "bad" choice of things to invest in (instead of a good choice). The consequences of a bad investment decision can be overcome; the consequence of not getting that money into the 403(b) plan while the opportunity exists are catastrophic. – Dilip Sarwate Apr 30 '18 at 20:11

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.