What is a 403(b)
A 403(b) is a tax-advantaged retirement savings plan available to employees of public schools, nonprofits, and certain other tax-exempt organizations — similar in structure to a 401(k).
A 403(b) is an employer-sponsored, tax-advantaged retirement savings plan designed for employees of public schools, universities, nonprofit organizations, hospitals, and certain religious institutions. It functions nearly identically to a 401(k) — you contribute pre-tax money from your paycheck, the balance grows tax-deferred, and withdrawals in retirement are taxed as ordinary income.
The name comes from Section 403(b) of the Internal Revenue Code, which governs its rules.
How a 403(b) Works
- Your employer offers a 403(b) plan and selects the investment provider(s)
- You elect a contribution percentage from your paycheck
- Contributions are pre-tax — reducing your taxable income for the year
- The balance grows tax-deferred until retirement
- Withdrawals after age 59½ are taxed as ordinary income; early withdrawals incur a 10% penalty plus taxes
Contribution Limits (2025)
| Age | Annual Limit |
|---|---|
| Under 50 | $23,500 |
| 50 or older (catch-up) | $31,000 |
| 15+ years with same employer (special catch-up) | Up to $3,000 extra |
The 403(b) shares the same base contribution limit as the 401(k), and employees who also have access to a 403(b) and a 401(k) can contribute to both — but the combined limit still applies.
403(b) vs. 401(k)
| Feature | 403(b) | 401(k) |
|---|---|---|
| Who it's for | Nonprofits, schools, hospitals | For-profit employers |
| Investment options | Often annuities + mutual funds | Broader fund selection |
| ERISA protection | Sometimes exempt | Full ERISA protection |
| Special catch-up | Yes (15-year rule) | No |
One notable difference: 403(b) plans offered by church organizations can be exempt from ERISA, meaning fewer investor protections. 403(b) plans have historically offered a narrower range of investment options — often annuity products alongside mutual funds — although this is improving at many institutions.
Roth 403(b) Option
Many 403(b) plans now offer a Roth 403(b) option, which works like a Roth IRA: contributions are made with after-tax dollars, but qualified withdrawals (including growth) are completely tax-free.
Unlike a Roth IRA, there are no income limits on Roth 403(b) contributions — making it available to high earners who may be ineligible for a direct Roth IRA contribution.
Employer Matching
Many employers — particularly school districts and healthcare systems — offer a matching contribution, though the vesting schedule varies. Always contribute at least enough to capture the full employer match before directing additional retirement savings elsewhere. An unmatched 403(b) contribution still carries significant tax advantages, but a match is an immediate 50–100% return on the contributed dollar.
What If You Leave Your Job?
If you leave an employer, your 403(b) balance can typically be:
- Left with the existing plan (if the plan allows)
- Rolled over into a new employer's plan
- Rolled over into a Traditional IRA
- Cashed out (triggering taxes + 10% penalty if under 59½)
Rolling the balance into an IRA is often the most flexible option, as it opens up a wider range of investment choices — including low-cost index funds.