What is a 403(b)?

A 403(b) is a tax-advantaged retirement plan offered to employees of public schools, colleges, hospitals, churches, and certain tax-exempt nonprofits. 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.

Many employers match some portion of what you put in, though matching is less common in the 403(b) world than in corporate 401(k) plans. When a match is offered, it’s effectively free money, so contributing at least enough to capture the full match is usually the first move.

The historical quirk of 403(b) plans is their investment menu. For decades these plans were built around annuity contracts sold by insurance companies, and many still lean that way. Some 403(b) plans, especially at K-12 school districts, offer a lineup dominated by high-fee variable annuities rather than the low-cost index funds you’d find in a typical 401(k). University and hospital plans tend to be better, often built around mutual funds through providers like Fidelity or Vanguard. It’s worth reading your plan’s fee disclosure before assuming a 403(b) is as cheap as a 401(k); the difference in expense ratios can quietly cost you tens of thousands 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). Savers 50 and older can add an $8,000 catch-up contribution, bringing their total to $32,500. Under a SECURE 2.0 provision, workers aged 60 through 63 get a larger catch-up of $11,250 instead of the standard $8,000.

There’s also an overall cap that includes employer contributions. For 2026, total additions to your account (your deferrals plus any employer match or non-elective contributions) can’t exceed $72,000, or 100% of your compensation if that’s lower.

One feature unique to 403(b) plans is the 15-year service catch-up. If you’ve worked at least 15 years for the same qualifying employer (typically schools, hospitals, or churches), your plan may let you contribute up to an extra $3,000 per year, capped at $15,000 over your lifetime. Not every plan offers it, and it stacks in a specific order with the age-50 catch-up, so check with your plan administrator before counting on it.

403(b) vs. 401(k)

The two plans are close cousins, and for most savers they function almost identically: same 2026 deferral limit, same tax treatment, same early-withdrawal rules. The differences come down to who offers them and the details around the edges.

The 15-year service catch-up is the standout difference in the 403(b)'s favor, letting long-tenured employees save more. Working against it, 403(b) investment menus have historically carried higher fees, particularly the annuity-heavy plans common in K-12 districts. If you have both options across two jobs, the plan with lower-cost funds and a stronger match usually wins.

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 at age 55 or later.

While you’re still working, access is limited. Most plans only allow in-service withdrawals in narrow circumstances, such as a hardship distribution or reaching age 59 1/2. Traditional 403(b) balances are also subject to required minimum distributions (RMDs), which currently begin at age 73.

If your 403(b) fees are steep or the fund choices are thin, rolling it into an individual retirement account (IRA) after you leave the employer can open up a much wider, cheaper investment menu. Where a 403(b) or other retirement account fits into your broader retirement plan depends on your other income sources and withdrawal timing, which you can map out across every account in ProjectionLab to see how each one feeds your income in retirement.

Frequently Asked Questions

What’s the difference between a 403(b) and a 401(k)? They’re structurally almost the same plan, with matching contribution limits and tax rules. The main differences are that 403(b)s are offered by public schools, nonprofits, and hospitals rather than for-profit companies, they often carry higher-fee annuity investment options, and they offer a 15-year service catch-up that 401(k)s don’t.

How much can I contribute to a 403(b) in 2026? You can defer up to $24,500 of your salary in 2026. If you’re 50 or older, you can add an $8,000 catch-up for a total of $32,500, and if you’re aged 60 through 63, the catch-up rises to $11,250 under SECURE 2.0. Counting employer contributions, total additions to your account are capped at $72,000.

Can I roll a 403(b) into an IRA? Yes. Once you leave the employer, you can roll a traditional 403(b) into a traditional IRA and a Roth 403(b) into a Roth IRA without triggering taxes. This is a common move when the old plan’s fees are high or its fund selection is limited, since an IRA generally offers far more investment choices.

Is a 403(b) the same as an IRA? No. A 403(b) is an employer-sponsored plan you contribute to through payroll, with a 2026 deferral limit of $24,500 and possible employer contributions. An IRA is an account you open yourself, with a much lower 2026 contribution limit of $7,500 ($8,600 if you’re 50 or older). Many people use both.

Can I withdraw from my 403(b) while still employed? Usually only in limited situations. Most plans permit in-service withdrawals for a documented financial hardship or once you reach age 59 1/2. Before then, taking money out generally means a 10% early-withdrawal penalty plus income tax, so a 403(b) loan (if your plan allows one) is often a better option than an early distribution.

What is a Roth 403(b)? A Roth 403(b) uses the same account structure but flips the tax treatment: you contribute after-tax dollars, and qualified withdrawals in retirement come out tax-free. Many plans let you split contributions between traditional and Roth, and both share the same combined $24,500 deferral limit for 2026.