A 403(b) is a tax-advantaged retirement plan offered by public schools, 501(c)(3) tax-exempt organizations, and certain religious employers to their employees. Named for the tax code section that authorizes it, a 403(b) functions much like its private-sector cousin, the 401(k): money comes out of your paycheck before or after tax, grows with a tax advantage, and is invested for retirement. The plan sponsor and investment menu look different, but the core mechanics (deferral limits, catch-up contributions, and the traditional-versus-Roth choice) largely mirror a 401(k).
403(b)
A 403(b) is an employer-sponsored retirement plan for employees of public schools, tax-exempt nonprofits, and certain ministers. It works much like a 401(k) — payroll-deducted contributions, a deferral limit of $24,500, and traditional or Roth treatment, but with its own investment menu and quirks.
Last reviewed by Steven Fox, CFP®, EA
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Quick Summary
- Available to employees of public schools, 501(c)(3) nonprofits (like hospitals and universities), and some church or ministry workers.
- The employee deferral limit is $24,500, the same as a 401(k), plus catch-up contributions starting at age 50.
- Investment choices are traditionally limited to annuity contracts and mutual fund custodial accounts, rather than a broad fund menu.
- Long-tenured employees of certain organizations can qualify for an additional catch-up contribution on top of the standard age-50 catch-up.
- Plans sponsored by public schools and churches are generally not covered by ERISA; many nonprofit-sponsored plans with employer contributions are.
Definition
Advanced Explanation
Historically, 403(b) plans were restricted to two investment vehicles: annuity contracts from insurance companies (which is why 403(b)s are sometimes still called "tax-sheltered annuities"), and custodial accounts invested in mutual funds. Many plans still offer only one or the other, so the fund menu, and its costs, can vary a lot more from employer to employer than a typical 401(k)'s. Annuity-based 403(b)s in particular can carry higher underlying fees than a comparable 401(k) invested in index funds, which is worth checking before assuming your employer's plan is the cheapest place to save.
Contribution limits track the 401(k)'s: employees can defer up to $24,500, with an $8,000 catch-up starting at age 50 and a temporary "super" catch-up of $11,250 for those aged 60 through 63. Beyond the standard age-50 catch-up, employees with 15 or more years of service at a qualifying organization — schools, hospitals, home health agencies, health and welfare service agencies, and churches — can be eligible for an additional catch-up under a separate, long-standing rule unique to 403(b)s, subject to its own lifetime cap. A person eligible for both this service-based catch-up and an age-based catch-up in the same year doesn't have to pick one over the other — the IRS applies the 15-year catch-up first, then any additional age-based catch-up room on top of it, so an eligible participant can potentially defer more than either provision would allow alone.
One structural point matters for how protected the money is: 403(b) plans sponsored by public school districts and by churches are generally exempt from ERISA, the federal law that otherwise governs private retirement plans. Many nonprofit-sponsored 403(b)s that include employer contributions or more active plan administration are ERISA-covered like a 401(k). Whether a plan is ERISA-covered affects creditor protection and certain plan-governance rules, though it rarely changes the tax treatment an employee experiences day to day.
Used in a Sentence
“As a public-school teacher, Marisol couldn't open a 401(k) through her employer, but her district's 403(b) let her defer part of her paycheck into a mutual fund custodial account with the same tax treatment.”
How It Works
A hypothetical example: Tom, 62, has worked at the same nonprofit hospital for 20 years and contributes to its 403(b). Because he's between 60 and 63, he can use the temporary super catch-up rather than the standard age-50 catch-up, letting him defer more than a younger coworker could in the same year. His hospital's plan also happens to qualify him for the long-service catch-up available to 403(b) participants with 15+ years at certain organizations, and because the two provisions stack rather than compete, his plan administrator applies his 15-year catch-up room first, then the super catch-up on top of that, letting him defer more than either provision would allow on its own.
Meanwhile his colleague Priya, 28, is just starting out and contributes a smaller percentage of pay into the same 403(b)'s Roth option, choosing to pay tax on her contributions now while her income, and tax bracket, are relatively low.
Pros and Cons
Pros
- Same high contribution limits as a 401(k), well above what an IRA alone allows.
- Payroll deduction makes saving automatic.
- Traditional and Roth options let you choose when you pay tax on the money.
- Long-tenured employees at qualifying organizations may access an additional catch-up contribution.
Cons
- Investment menus, especially annuity-based ones, can carry higher fees than a comparable 401(k) invested in low-cost index funds.
- Plan quality varies widely by employer, and not every 403(b) offers a matching contribution.
- Early withdrawals before 59 1/2 generally face the same 10% penalty and income tax that apply to a 401(k).
- Whether the plan is ERISA-covered depends on the sponsor, which affects creditor protection and plan governance.
People Also Asked
Answers to the most frequently asked questions.
How is a 403(b) different from a 401(k)?
The main difference is who can offer one. A 401(k) is generally offered by for-profit and some other private employers; a 403(b) is limited to public schools, 501(c)(3) nonprofits, and certain church or ministry employers. The contribution limits and traditional-versus-Roth choice are essentially the same, but 403(b) investment menus have historically leaned toward annuity contracts and mutual fund custodial accounts rather than a broad open fund lineup.
How much can I contribute to a 403(b) in 2026?
The employee deferral limit is $24,500, the same as a 401(k). Savers 50 and older can add an $8,000 catch-up, and those aged 60 through 63 can use a temporary $11,250 "super" catch-up instead. Some long-tenured employees at qualifying organizations may also access an additional service-based catch-up, and, unlike most other catch-up rules, it stacks on top of an age-based catch-up in the same year rather than forcing a choice between them.
Does my employer match 403(b) contributions?
It depends entirely on the employer. Many nonprofits and school districts offer some form of matching or automatic contribution, but unlike 401(k)s at large private employers, a match isn't guaranteed or standardized. Check your plan's summary description or benefits office to find out what, if anything, your employer contributes.
Are 403(b) fees higher than 401(k) fees?
They can be, particularly in annuity-based plans, which sometimes carry insurance-related charges layered on top of investment fees. Not every 403(b) is expensive, many now offer low-cost index fund options, but it's worth reviewing your plan's fee disclosure rather than assuming it's comparably priced to a typical 401(k).
Can I roll over an old 403(b) when I change jobs?
Generally yes. Like a 401(k), you can usually roll a 403(b) into a new employer's plan (if it accepts rollovers) or into an IRA through a direct rollover, which avoids mandatory withholding. Whether it's worth moving the money depends on the new plan's investment options and fees compared with an IRA.
Related Terms
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