Final answer:
Section 403(b) plan funds typically offer investment options including mutual funds, annuities, government savings bonds, money market mutual funds, and small CDs. These tax-deferred plans are portable and aim to generate real rates of return to help retirees combat inflation costs.
Step-by-step explanation:
The specific investment options or categories allowed for Section 403(b) plan funds primarily include mutual funds and annuities. A Section 403(b) plan is a defined contribution plan that allows employees, typically of non-profit organizations and schools, to save for retirement. Investment options are often selected by the employer and can span a range of assets, including mutual funds which are diversified investment funds managed by professionals; and fixed and variable annuities, which are insurance products that provide a guaranteed income stream for life or a set period of time. These plans enjoy a special tax status, deferring taxes on contributions and earnings until retirement, at which point the funds are withdrawn and taxed as income. Furthermore, participants may have the option to invest in government savings bonds, which are a secure, low-risk investment backed by the full faith and credit of the U.S. government.
Additionally, for a more conservative investment, options such as money market mutual funds and small Certificate of Deposits (CDs) may be available. Money market funds typically invest in short-term, high-quality securities and offer more liquidity, while CDs offer a fixed interest rate over a specified term. Individuals saving for retirement through a Section 403(b) plan can often transfer their plan to a new employer, offering portability and continual growth of their retirement savings.