What type of investment does a 403(b) plan typically involve?

What type of investment does a 403(b) plan typically involve?

• A. Post-tax dollar contributions only
• B. Tax-qualified variable annuity
• C. Real estate investment trusts
• D. Penny stocks

Answer: (B)

A 403(b) plan is a type of retirement savings plan designed for certain employees of public schools and tax-exempt organizations. It is often structured as a tax-qualified variable annuity. This means that contributions made to a 403(b) plan may be made on a pre-tax basis, allowing for tax-deferred growth until funds are withdrawn, typically during retirement when an individual may be in a lower tax bracket. The classification as a variable annuity indicates that the funds can be invested in various investment options, which may include mutual funds or other investment portfolios that can fluctuate in value. Hence, the investment in a 403(b) plan provides both tax advantages and the potential for growth through these variable investments. The other options do not accurately represent the characteristics of a 403(b) plan. Post-tax dollar contributions only refer to Roth accounts, which have different implications. Real estate investment trusts (REITs) can be included in some 403(b) plans, but they do not define the plan itself. Lastly, penny stocks are not typically associated with 403(b) plans, as they involve high risk and volatility rather than the steady growth suited for retirement planning.

A 403(b) plan is a type of retirement savings plan designed for certain employees of public schools and tax-exempt organizations. It is often structured as a tax-qualified variable annuity. This means that contributions made to a 403(b) plan may be made on a pre-tax basis, allowing for tax-deferred growth until funds are withdrawn, typically during retirement when an individual may be in a lower tax bracket.

The classification as a variable annuity indicates that the funds can be invested in various investment options, which may include mutual funds or other investment portfolios that can fluctuate in value. Hence, the investment in a 403(b) plan provides both tax advantages and the potential for growth through these variable investments.

The other options do not accurately represent the characteristics of a 403(b) plan. Post-tax dollar contributions only refer to Roth accounts, which have different implications. Real estate investment trusts (REITs) can be included in some 403(b) plans, but they do not define the plan itself. Lastly, penny stocks are not typically associated with 403(b) plans, as they involve high risk and volatility rather than the steady growth suited for retirement planning.