403(b) Plan

A 403(b) plan is a retirement account available to employees of tax-exempt organizations — schools, universities, nonprofits, hospitals, and religious institutions. It operates similarly to a 401(k), but with slightly higher contribution limits and traditionally lower administrative costs.

How it works

A 403(b) plan is a deferred compensation arrangement for employees of tax-exempt organizations. You contribute pre-tax salary (up to $23,500 for 2024), and the employer may add matching contributions. Your balance grows tax-deferred, and you withdraw it (or begin withdrawals) in retirement.

The mechanics are nearly identical to a 401(k), except the plan is offered by a nonprofit, school, or hospital rather than a for-profit corporation.

Who can participate

• Public school teachers.
• University and college employees.
• Nonprofit organization staff.
• Hospital and healthcare organization workers.
• Religious organization employees.

If your employer is a 501(c)(3) tax-exempt organization, you are likely eligible for a 403(b).

Key differences from 401(k)

Contributions: Both allow $23,500 employee contributions (2024). 403(b)s are sometimes slightly more generous for long-service employees (15+ years).

Employer match: 401(k)s often include employer match; 403(b)s offer match less consistently, though some do.

Investment options: 401(k)s typically offer a menu of mutual funds. 403(b)s historically offered annuities, though most now offer mutual funds as well.

Administrative simplicity: 403(b)s traditionally had fewer regulatory requirements than 401(k)s, though this gap has narrowed.

Portability: Both are portable if you leave; you can roll to an IRA or new employer plan.

Traditional vs. Roth contributions

Like many 401(k)s, some 403(b) plans now offer both:

• Traditional 403(b): Pre-tax contributions, taxed on withdrawal.
• Roth 403(b): After-tax contributions, tax-free withdrawal.

Not all plans offer Roth; check your employer’s plan details.

Withdrawal and RMD

You can withdraw without penalty starting at 59½. Withdrawals before 59½ trigger a 10% penalty plus income tax (with exceptions).

Required minimum distributions begin at age 73.

See also