What is a 403(b) Plan?

A 403(b) plan 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.

Your employer may also contribute, either as a match on what you defer or as a flat contribution regardless of whether you defer. If your plan offers a match, deferring at least enough to receive all of it is the only way to collect that part of your compensation.

The historical quirk of 403(b) plans is their investment menu. The tax code generally limits 403(b) assets to annuity contracts and custodial accounts holding mutual funds (church retirement income accounts under section 403(b)(9) are the exception), and for decades these plans were built around annuities sold by insurance companies. Some plans, particularly at K-12 school districts, still offer lineups built around variable annuities with higher fees than the index funds common in 401(k)s, while others use low-cost mutual fund menus. 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). 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. Catch-up contributions sit outside that cap.

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 doesn’t offer a Roth option at all, the plan can’t accept age-based catch-ups from you, so you’re limited to the base $24,500. The threshold looks only at wages from that employer, so household income and wages from an unrelated employer don’t count.

The 15-Year Service Catch-Up

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 (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. 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, so check with your plan administrator before counting on 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. The differences come down to who can offer them and the details around the edges.

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. If you switch from a corporate job to a hospital mid-year, or hold both jobs at once, your deferrals to both plans together can’t exceed $24,500 (plus any catch-up you’re eligible for). The $72,000 total-additions limit, by contrast, generally applies separately to each unrelated employer’s plan.

Investments and fees

A 401(k) can hold almost any investment the plan sponsor chooses. A 403(b) is generally restricted by statute to annuity contracts and custodial accounts invested in mutual funds, with church retirement income accounts under section 403(b)(9) as the exception. That restriction doesn’t make a 403(b) worse on its own, since a low-cost index mutual fund is allowed, but it explains why annuity-heavy menus exist in the 403(b) world and rarely in 401(k)s.

Which plan is better?

Neither, structurally. The 15-year service catch-up gives long-tenured employees at qualifying employers a little more room. Beyond that, the comparison depends on the specific plan: the fund menu and its expenses, the employer contribution, and whether a Roth option exists. If you have access to both across two jobs, compare those three things rather than the plan type.

403(b) vs. 457(b)

Many public-sector employers, especially school districts, state universities, and public hospitals, 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.

Each plan’s catch-up requires that plan to allow it, and 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) 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.

While you’re still working, access is limited. Plans typically allow in-service withdrawals only 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 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.

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 opens up a wider investment menu. 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.

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, hospitals, churches, and 501©(3) nonprofits; 401(k)s are for private-sector employers. Both share one $24,500 deferral limit for 2026 and the same tax treatment, but a 403(b) offers a 15-year service catch-up and is generally restricted to annuities and mutual funds (church plans excepted).

Can I contribute to both a 403(b) and a 457(b)? Yes, and the limits are separate. In 2026 you can defer $24,500 to each, for $49,000 total before catch-ups, if your employer offers both.

How much can I contribute to a 403(b) in 2026? $24,500 of your own salary. 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. If your prior-year FICA wages from the employer topped $150,000, those catch-ups must be Roth. Counting employer contributions, total additions to your account are capped at $72,000 before catch-ups.

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. People often do this 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). You can contribute to both in the same year.

Can I withdraw from my 403(b) while still employed? Only in limited situations, typically a documented financial hardship or reaching age 59 1/2, depending on what your plan allows. Before 59 1/2, a withdrawal generally means a 10% penalty plus income tax. A 403(b) loan, if your plan offers one, avoids both 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)? 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. Plans with a Roth option let you split contributions between traditional and Roth, and both share the same combined $24,500 deferral limit for 2026.