What Is a 403(b) Plan?

What Is a 403(b) Plan?

By Charles Joseph | Editor, Financial Affairs
Reviewed by Corey Michael | Senior Financial Analyst

A 403(b) plan is a retirement plan that is available for public school employees, employees of certain tax-exempt organizations, and certain ministers. Similar to a 401(k) plan, it allows employees to contribute pre-tax dollars to the plan, which then grows tax-free until withdrawal during retirement. Contributions are made through payroll deductions, and many employers offer a match program, but not all. The plan may also offer loan provisions that allow participants to borrow from the account in case of financial hardship.

Related Questions

1. What types of organizations offer 403(b) plans?

These plans are typically offered by public schools, universities, hospitals, religious groups, and other tax-exempt charitable organizations.

2. What is the biggest difference between a 403(b) and a 401(k) plan?

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The biggest difference is that a 403(b) is offered by tax-exempt organizations and public schools, while a 401(k) is offered by private-sector employers. 403(b) plans also often have lower administrative costs.

3. How much can you contribute to a 403(b) plan?

In 2021, the contribution limit for 403(b) plans is $19,500. Those aged 50 and over can make an additional catch-up contribution of $6,500, for a total of $26,000.

4. What are the tax advantages of a 403(b) plan?

Contributions to a 403(b) plan are tax-deductible, meaning they lower your taxable income for the year. The money in the account then grows tax-free until it is withdrawn in retirement.

5. Can you roll over a 403(b) into a 401(k) or IRA?

Yes, if you leave a job that offers a 403(b), you can roll the money into a new employer’s 401(k) plan or an individual retirement account (IRA). These rollovers are typically tax-free.