What Is a 403(b)?
In plain English
A 403(b) plan is an employer-sponsored retirement savings plan for employees of public schools, nonprofits, hospitals, and other 501(c)(3) organizations. Like a 401(k), it allows pre-tax or Roth contributions, with tax-deferred growth. Contribution limits are the same as a 401(k), and many plans offer employer matching.
How Is a 403(b) Different From a 401(k)?
The most significant difference is which employers can offer each plan — 401(k)s are for for-profit companies, while 403(b)s serve nonprofits and government entities. Some 403(b) plans offer an additional catch-up provision allowing long-term employees (15+ years of service) to contribute an extra $3,000 per year, up to a lifetime limit of $15,000. Investment options in 403(b) plans are often more limited.
What Investment Options Are Available in a 403(b)?
Historically, 403(b) plans offered primarily annuities through insurance companies. Today, many plans include mutual funds as well. The investment menu is typically smaller than a 401(k), which can limit diversification. Review your plan's expense ratios carefully, as some older 403(b) annuity products carry high fees that can significantly erode long-term returns.
Can You Contribute to Both a 403(b) and an IRA?
Yes, you can contribute to both a 403(b) and an IRA in the same year. Your IRA deductibility may be limited based on income if you participate in an employer plan, but Roth IRA contributions (within income limits) are always available. Maximizing both can significantly boost your retirement savings, especially if your employer offers matching contributions.
Frequently asked questions
What happens to my 403(b) if I leave my nonprofit job?
You can roll your 403(b) into an IRA, a new employer's 401(k) or 403(b), or leave it with your former employer. Rolling to an IRA often provides the most investment flexibility. Cashing out triggers taxes and a 10% penalty if you're under 59½.
Do 403(b) plans have required minimum distributions?
Yes. Like 401(k) plans, 403(b) accounts require RMDs starting at age 73. You must withdraw a minimum amount each year or face a significant penalty. Roth 403(b) accounts were previously subject to RMDs, but the SECURE 2.0 Act eliminated RMDs for Roth accounts in employer plans starting in 2024.
Keep exploring
Related terms
401(k)
A 401(k) is an employer-sponsored retirement savings plan that lets you contribute pre-tax dollars, reducing your taxable income today while your investments grow tax-deferred.
Roth IRA
A Roth IRA is an individual retirement account where you contribute after-tax dollars and your investments grow tax-free, with tax-free withdrawals in retirement.
Rollover IRA
A rollover IRA receives funds transferred from an employer-sponsored retirement plan like a 401(k), preserving tax-deferred status while giving you control over investment choices.
Employer Match
An employer match is free money your company contributes to your retirement account to match a portion of your own contributions — widely considered the best return on investment available.
Required Minimum Distribution (RMD)
A required minimum distribution (RMD) is the minimum amount the IRS requires you to withdraw annually from most retirement accounts starting at age 73.
Catch-Up Contributions
Catch-up contributions allow workers aged 50 and older to contribute extra money to retirement accounts beyond standard annual limits, helping them accelerate savings before retirement.