What is a 403(b) Plan?

A 403(b) plan is a tax-advantaged retirement plan offered to employees of public schools and colleges, churches, and 501©(3) tax-exempt organizations, including nonprofit hospitals. It works much like a 401(k): you contribute a portion of each paycheck, the money grows tax-deferred (or tax-free in a Roth 403(b)), and your employer may add a match or other contributions.

The plan gets its name from Section 403(b) of the Internal Revenue Code (IRC), the part of the tax law that authorizes it for nonprofit and public-sector employers. You’ll sometimes hear it called a tax-sheltered annuity (TSA), a holdover from its origins.

How a 403(b) Works

You choose a percentage of your salary to defer into the plan, and your employer routes it there before it ever hits your bank account. Traditional contributions come out pre-tax, lowering your taxable income for the year, and you pay ordinary income tax when you withdraw in retirement. Roth 403(b) contributions work in reverse: you pay tax now, and qualified withdrawals later come out tax-free.

Your employer may also contribute, either as a match on what you defer or as a flat contribution regardless of whether you defer. A match is paid only on what you defer, so deferring less than the match formula covers means receiving a smaller employer contribution.

403(b) plans have a narrower investment menu than 401(k)s, built for decades around annuities sold by insurance companies (more on that below). Fees vary by plan and by product, so read your plan’s fee disclosure before assuming a 403(b) is as cheap as a 401(k); a difference of even half a percentage point in annual expenses compounds over a career.

403(b) Contribution Limits for 2026

For 2026, you can defer up to $24,500 of your own salary into a 403(b), plus an age-based catch-up from age 50. A separate cap covers your deferrals plus employer contributions together: $72,000, or 100% of your compensation if that’s lower. Age-based catch-ups sit outside that cap, but the 15-year service catch-up counts toward it.

The Roth Catch-Up Rule for Higher Earners

SECURE 2.0 also changed how higher earners make catch-ups. If your prior-year wages subject to Federal Insurance Contributions Act (FICA) tax from the employer sponsoring the plan exceeded $150,000, your age-based catch-up contributions in 2026 must go in as Roth contributions. You pay tax on them now rather than deducting them.

If your plan has no Roth option, it can’t accept age-based catch-ups from you at all. The threshold looks only at wages from that employer, so household income and wages from an unrelated employer don’t count. If you had no FICA wages from that employer in the prior year (for example, as a state or local government employee whose job isn’t covered by Social Security), the Roth requirement doesn’t apply to you.

The 15-Year Service Catch-Up

If you’ve worked at least 15 years for the same qualifying employer (a school, hospital, church, or certain other organizations), your plan may let you contribute up to an extra $3,000 per year, capped at $15,000 over your lifetime. A third limit applies as well: $5,000 times your years of service, minus the elective deferrals you’ve already made to that employer’s plans, so if you’ve averaged $5,000 or more a year in deferrals, the catch-up is zero. When you qualify for both, contributions count toward the 15-year catch-up first and the age-50 catch-up second. The Roth catch-up rule above doesn’t apply to the 15-year catch-up. Not every plan offers it.

403(b) vs. 401(k)

The two plans are close cousins: same 2026 deferral limit, same traditional and Roth tax treatment, same early-withdrawal penalty and required minimum distribution rules.

Contribution limits are shared, not separate

The $24,500 deferral limit is per person across 401(k) and 403(b) plans combined, not per plan. Switch from a corporate job to a nonprofit hospital mid-year, or hold both at once, and your deferrals to both plans together can’t exceed $24,500 plus any catch-up. The $72,000 total-additions limit, by contrast, generally applies separately to each unrelated employer’s plan.

Investments and fees

A 403(b) is in practice limited to annuity contracts and custodial accounts invested in mutual funds, with church retirement income accounts under section 403(b)(9) as the exception. The SECURE 2.0 Act changed the tax code to allow collective investment trusts (CITs) as well, but the matching securities-law change still needs Congress: as of October 2026, the House has passed it as part of the INVEST Act (December 2025) and the Senate has not. That doesn’t make a 403(b) worse on its own, since low-cost index mutual funds are allowed, but it explains why annuity-heavy menus are common in 403(b)s and rare in 401(k)s.

Which plan is better?

Neither, structurally. Beyond the 15-year service catch-up, what matters is the specific plan: the fund menu and its expenses, the employer contribution, and whether a Roth option exists.

403(b) vs. 457(b)

Many public employers, especially school districts and state universities, offer a 457(b) plan alongside the 403(b). The two plans have separate deferral limits, so you can defer the full amount to each.

The Roth catch-up rule applies to both. A nongovernmental 457(b) (offered by some tax-exempt employers to select executives) doesn’t allow age-based catch-ups at all, and its assets remain subject to the employer’s creditors.

The other big difference is access. Distributions from a governmental 457(b) after you leave the employer aren’t subject to the 10% early-withdrawal penalty at any age, except for money rolled in from other plan types. That makes a 457(b) useful for anyone planning to retire before 59 1/2. A 457(b) also offers its own special catch-up in the three years before the plan’s normal retirement age, which can’t be combined with the age-50 catch-up in the same year.

403(b) vs. IRA

A 403(b) runs through your employer’s payroll, while an individual retirement account (IRA) is one you open yourself at any brokerage. The 403(b) allows far more each year, $24,500 for 2026 against the IRA’s $7,500 ($8,600 at 50 or older), and may come with employer contributions. The IRA usually offers a wider investment menu. The limits are separate, so you can contribute to both in the same year, though a workplace plan can limit how much of a traditional IRA contribution you can deduct.

403(b) Withdrawal Rules

A 403(b) follows the same core distribution rules as a 401(k). You can begin taking penalty-free withdrawals at age 59 1/2. Pull money out before then and you’ll generally owe a 10% early-withdrawal penalty on top of ordinary income tax, with exceptions for disability, certain medical expenses, and separation from service in or after the year you turn 55.

Traditional 403(b) balances are also subject to required minimum distributions (RMDs), which begin at age 73, or 75 if you were born in 1960 or later. If you’re still working for the employer that sponsors the plan, you can generally delay RMDs from it until you retire, if the plan allows. Laying your 403(b) alongside your other accounts in a ProjectionLab retirement plan shows how its withdrawals interact with the rest of your income, year by year.

If your 403(b) fees are steep or the fund choices are thin, rolling it into an IRA after you leave the employer opens up a wider investment menu. If you left in or after the year you turned 55, though, the rollover gives up penalty-free access under the Rule of 55, since IRAs aren’t covered by it.

Frequently Asked Questions

What’s the difference between a 403(b) and a 401(k)? Who can offer them. 403(b)s are for public schools, churches, and 501©(3) nonprofits; 401(k)s are for private-sector employers. The comparison table above covers the smaller differences.

Can I contribute to both a 403(b) and a 457(b)? Yes, if your employer offers both. The limits are separate: $24,500 each in 2026, or $49,000 total before catch-ups.

How much can I contribute to a 403(b) in 2026? $24,500 of your own salary, or $32,500 at 50 and older and $35,750 at ages 60 through 63. Counting employer contributions, total additions are capped at $72,000 before age-based catch-ups.

Can I roll a 403(b) into an IRA? Yes, once you leave the employer. A traditional 403(b) rolls tax-free into a traditional IRA, and a Roth 403(b) into a Roth IRA.

Can I withdraw from my 403(b) while still employed? Only in limited situations, typically hardship or reaching age 59 1/2, depending on your plan. A 403(b) loan, if your plan offers one, avoids income tax and the 10% penalty as long as you repay it on schedule, but an unpaid balance when you leave the job can be treated as a taxable distribution.

What is a Roth 403(b)? The Roth option inside a 403(b): you contribute after-tax dollars, and qualified withdrawals come out tax-free. It shares the $24,500 limit with traditional deferrals, and works the same way as a Roth 401(k).