By Gayle Sato
Edited by Samuel MountjoyWhat Is a 403(b)?
By Gayle SatoEdited by Samuel Mountjoy
Quick Answer
A 403(b) is a tax-advantaged retirement plan for employees of certain not-for-profit organizations like public schools, health care organizations, charities and churches. Like a 401(k), it lets you set aside part of your paycheck for retirement, and may include a match from your employer or a Roth option that offers different tax benefits.
A 403(b) is an employer-based retirement plan, similar to a 401(k). The key difference is that a 403(b) is for employees of tax-exempt organizations like public schools, hospitals, churches and charities. If you work for one of these organizations, you may be eligible to save for retirement with special tax benefits through a 403(b). Here's what you need to know.
How Does a 403(b) Work?
A 403(b) plan allows you to contribute to retirement savings directly from your paycheck. These plans offer tax advantages that make it easier to contribute more to your retirement savings and grow your money over time. Tax benefits depend on whether the 403(b) is a traditional or Roth plan:
- Traditional 403(b): With a traditional 403(b) plan, your contributions are tax-deductible and any earnings you make within your account are tax-deferred. You don't pay taxes as your money grows, but will pay regular income tax on any withdrawals you make.
- Roth 403(b): Contributions to a Roth 403(b) are made on an after-tax basis and are not tax deductible. However, earnings and qualified withdrawals are tax-free. In general, designated Roth accounts are less common than traditional 403(b) plans.
Money you contribute to a 403(b) is invested, typically in mutual funds or annuities. Your employer may contribute to your plan as well, which helps you save more toward your retirement goals.
Learn more: Roth 401(k) vs. 401(k): Which Should I Choose?
403(b) Contribution Limits
The IRS limits the amount you can contribute to a 403(b) plan each year. In 2026, the maximum you can contribute to a 403(b) plan is $24,500. If your employer contributes to your account, the total combined contribution for the year can't exceed $72,000. You can make catch-up contributions of up to $8,000 if you're age 50 or older, or up to $11,250 if you're aged 60 to 63. For 403(b) plans only, a special catch-up contribution of up to $3,000 is available to employees with 15 or more years of service.
| 403(b) Contribution Limits for 2026 | |
|---|---|
| 2026 contribution limit | $24,500 |
| 2026 contribution limit with employer match | $72,000 |
| Catch-up contribution for people ages 50+ | $8,000 |
| Super catch-up contribution for people ages 60 to 63 | $11,250 |
| Special 403(b) catch-up with 15+ years of service | Up to $3,000 per year ($15,000 lifetime limit) |
Source: IRS
Tip: To deduct contributions to a traditional 403(b) plan, your income can't exceed IRS limits. For example, the deduction begins phasing out for married couples making more than $129,000 in 2026. See contribution, deduction and income limits for 2026 for more.
403(b) vs. 401(k)
If a 403(b) plan sounds very similar to a 401(k), it's not your imagination. Both are employer-based, tax-advantaged retirement plans. They share the same IRS annual contribution limits and many of the same IRS rules. The primary difference between the two lies in the types of employers that offer them: for-profit companies offer 401(k)s and nonprofits offer 403(b)s. There are incidental differences as well, including the types of investments they offer, catch-up contribution options and typical fees.
Here's a quick side-by-side comparison of 403(b) vs. 401(k):
| 403(b) | 401(k) | |
|---|---|---|
| Who it's for | Employees of for-profit companies | Employees of tax-exempt nonprofit and not-for-profits including public schools, churches and some government organizations |
| Tax treatment | Traditional (pretax) and sometimes Roth (after-tax) options | Traditional (pretax) and sometimes Roth (after-tax) options |
| Contribution limits | $24,500 in 2026 | $24,500 in 2026 |
| Catch-up contributions |
$8,000 for ages 50+ $11,250 for ages 60 to 63 only |
$8,000 for ages 50+ $11,250 for ages 60 to 63 only Up to $3,000 for employees with 15+ years of service |
| Employer match | Common | Can be offered, but check your individual plan |
| Investment options | Generally includes stocks, bonds, mutual funds and ETFs | Traditionally focuses on annuities or mutual funds |
| Fees | Expenses vary by plan and individual investment | Investments may favor high-expense options like annuities |
Pros and Cons of 403(b) Plans
Contributing to a 403(b) probably has more advantages than disadvantages: It's an easy, tax-advantaged way to save for retirement. Here are a few considerations to keep in mind:
Pros
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Automatic contributions: You're more likely to save consistently if money is automatically deducted from your paycheck (before you have the opportunity to spend it).
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Employer matching: Having your employer contribute to your retirement plan is a definite plus. You'll reach your savings goals faster with no additional effort.
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Tax-deductible contributions: Contributions you (or your employer) make to a traditional 403(b) are deductible from your taxable income.
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Tax-deferred or tax-free earnings: You don't pay taxes on a traditional 403(b) until you withdraw the money; in a Roth 403(b), your earnings are never taxed.
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Tax-free withdrawals in retirement: A designated Roth 403(b) allows you to make qualifying withdrawals tax-free.
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Compounding: As your 403(b) contributions grow, you earn money on both your contributions and growth—in effect, you earn interest on your interest.
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Catch-up contributions: In 2026, 403(b) plans have catch-up contributions for people ages 50-plus, super catch-ups for people ages 60 to 63, and additional 403(b)-only catch-ups for people with 15 or more years of service.
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Higher contribution limits than an IRA: Employer-based 403(b) plans have substantially higher contribution limits than IRAs do; $24,500 versus $8,000 in 2026.
Cons
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Limited investment options: Though every plan is different, 403(b) plans may have fewer investment options than typical 401(k)s or IRAs. Historically, 403(b)s have relied more heavily on annuities over investments like stocks or index funds.
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Higher fees: Some 403(b) investments, particularly annuities, have high fees and expenses. While your investment choices may be limited in a 403(b), it's always smart to check into expenses when you're comparing and considering investments.
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Early withdrawal penalties: With a few exceptions, withdrawals you take before you reach age 59½ may be subject to a 10% early withdrawal penalty from the IRS. If you have a traditional 403(b), your early withdrawals are also taxable as regular income.
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Required minimum distributions: Starting at age 73, you'll be required to take minimum distributions from your traditional 403(b). Failure to take required minimum distributions could result in a stiff penalty.
How to Enroll in a 403(b)
The enrollment process will vary by employer, but here are the basic steps to setting up a 403(b) to save for retirement:
- Check with your employer. Ask about the availability of a 403(b) plan, eligibility and vesting rules, investment choices and what you need to do to get started.
- Set up contributions. Some employers automatically enroll employees in a retirement contribution plan, and it's up to you to opt out—or set your contribution at the level you want. Take a moment to decide how much of your paycheck you want to contribute to your 403(b), including contributions your employer might make on your behalf.
- Select your investments. Retirement plans typically have a limited selection of investment options. Research and evaluate your options carefully, taking into account potential risk, returns and expenses.
- Confirm your enrollment. Once your contributions are set, check your paycheck to make sure money is being allocated as intended.
Learn more: How to Invest Your 401(k)
How Much Should You Contribute to a 403(b)?
Consider your budget, retirement goals and IRS contribution limits when deciding how much to contribute to a 403(b). Here are a few tips to get you started:
- Aim for 10% to 15%. Experts suggest setting aside 10% to 15% of your income in tax-advantaged retirement savings. Starting early and saving consistently are key.
- Take advantage of your employer match. If your employer matches your 403(b) contributions, you may want to set your contribution to take full advantage of their match.
- Factor in other savings goals. In addition to saving for retirement, you may want to set aside funds separately for emergency savings, your kids' college funds or health savings. If you've already maxed out your employer match, you may want to fund IRA or Roth IRA accounts, which may offer more investment flexibility or different tax benefits.
- Mind IRS contribution limits. You may be penalized for putting too much into your retirement funds, so pay attention to annual contribution limits. Over-contributions may be correctable if you discover them before the tax deadline.
Learn more: Should I Max Out My 401(k)?
Frequently Asked Questions
The Bottom Line
Contributing to a 403(b) can help you save consistently toward retirement, with the added benefits of employer matching dollars (if available) and tax savings. If you're trying to take a comprehensive approach to retirement planning, consider all of the employer-based retirement options available to you and your spouse, as well as IRAs, health savings accounts, taxable investments and high-yield savings accounts. Saving for retirement is a big hill to climb, but you can make it step by step.
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About the author
Gayle Sato
Gayle Sato writes about financial services and personal financial wellness, with a special focus on how digital transformation is changing our relationship with money. As a business and health writer for more than two decades, she has covered the shift from traditional money management to a world of instant, invisible payments and on-the-fly mobile security apps.
Read more from Gayle