Which is Better: a 403b or Mutual Funds?

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

What Are 403b Annuities

Nonprofits and public education institutions can establish tax-sheltered annuity plans, often known as 403b. They enable participants to invest pre-tax funds in an annuity or custodial account.

  • Employee contributions, which are payroll deducted into a TSA 403b tax plan, are generally made on a pre-tax basis and are allowed to grow tax-deferred.
  • Withdrawals from the plan are taxed as ordinary income.
  • TSA 403b plans are funded with annuity contracts and a mutual fund platform
  • Roth contributions may be allowed and are taxable, subject to specific requirements.
  • Earnings on Roth contributions that meet specific requirements are not subject to federal income tax.
  • Some plans provide employer match and non-match contributions on behalf of plan participants. 
  • FICA taxes are withheld from salary reduction contributions to the 403b TSA retirement plan.
403B Annuity

403b Annuity Benefits

Helpful Tool: 403b contribution calculator

Annuity Vs 403B

Mutual Funds

According to Investor.gov, “a mutual fund is a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt. The combined holdings of the mutual fund are known as its portfolio. Investors buy shares in mutual funds. Each share represents an investor’s part ownership in the fund and the income it generates.”

Mutual funds do not grow tax-deferred in the same way as deferred annuities, which means they don’t offset taxes until you take money out of your account.

Employer-sponsored retirement plans like 401k usually invest employees’ money in mutual funds.

According to FINRA, Mutual funds are a popular way to invest for retirement because they can offer diversification, professional management, and certain advantages over purchasing individual stocks and bonds. However, Finra also states investing in a mutual fund involves certain risks where you may lose money.

403 B Annuity Vs. Mutual Funds

Mutual Fund Benefits

  • Upside potential
  • Diversification
  • Affordability
  • Liquidity
  • Professional management

Instead of receiving a series of payments, a lump sum payout, or sweeping the interest in an annuity, mutual funds allow distributions in cash, or investors can reinvest the earnings into the fund, making them more significant shareholders.

Investors receive their earnings through dividends, capital gains, and sales of shares.

Is A 403B A Mutual Fund

403b Annuity Vs. Mutual Fund At A Glance

403b AnnuityMutual Fund
Principal ProtectionYesNo
Access To PrincipalLimited liquidityLiquid
Control Over MoneyYesYes
Reinvest EarningsNoYes
Tax-Deferred GrowthYesNo
Guaranteed GrowthYesNo
Can Lose MoneyDepends on typeYes
Guaranteed IncomeYesNo
Inflation ProtectionYesNo
AffordabilityCan be expensiveLow Cost
Professional ManagementDepends on typeYes
Death BenefitYesYes
Long-Term Care InsuranceYesNo

Helpful Tool: Use our 403b payout calculator to determine how much monthly income you can receive from your 403b

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Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Shawn Plummer is a Chartered Retirement Planning Counselor, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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