What Is a 403(b) Plan? Rules, Contributions, and Withdrawals

If your employer offers a 403(b) plan, it's worth considering. Like a 401(k), it can help you save for retirement–but it has distinct eligibility, rules, and tax advantages. Here's what to keep in mind before contributing.

A 403(b) plan is an employer-sponsored retirement savings plan designed for employees of public schools, colleges, universities, churches, health care organizations, and certain tax-exempt nonprofits. A 403(b) allows eligible employees to save and invest for retirement through payroll deductions. Depending on your plan, contributions may be made on a pre-tax basis (allowing for tax-deferred growth) or an after-tax Roth basis (which may allow for qualified tax-free withdrawals).¹ 

A 403(b) plan works by allowing you to contribute a portion of your paycheck to a retirement account through your employer. Participation usually starts by choosing a dollar amount or percentage to contribute each pay period. Your contributions (known as elective deferrals) are then deposited into your 403(b) account and invested according to your selections.

Your employer sponsors the plan, chooses the plan provider, and determines which investment options are available. In some cases, your employer may also contribute to your account.

Eligibility for a 403(b) plan depends on the type of employer you work for. Unlike 401(k) plans, which are available to for-profit employers, 403(b) plans are restricted to specific categories of workers:

• Public school employees: Teachers, administrators, and support staff at state-sponsored public schools, colleges, and universities. Whether you work for a local K-12 school district or a large state university system, you are likely eligible for a 403(b).
• Tax-exempt 501(c)(3) organizations: Employees of nonprofit organizations that have 501(c)(3) status based on IRS rules qualify for these plans. This includes private schools, charitable foundations, research institutes, and various community-based nonprofits.
• Hospital workers and medical professionals: Staff members at nonprofit hospitals and medical centers, including physicians, surgeons, nurses, administrators, and other eligible employees, are often offered 403(b) plans.
• Ministers and clergy members: The IRS allows ministers, priests, and other clergy members to contribute to 403(b) plans, regardless of whether they're employed by a specific religious organization or self-employed in ministry.

The IRS sets annual limits on how much you can contribute to a 403(b) plan. These limits are adjusted slightly each year for inflation.

Yes. You may be able to contribute to a 403(b) and other retirement accounts in the same year, but the limits depend on the type of account.

For 2026, the employee contribution limit for 403(b) and 401(k) plans is $24,500. If you contribute to both in the same year, your combined employee contributions generally can't exceed that limit. For example, if you contribute $15,000 to a 403(b), you could generally contribute up to $9,500 to a 401(k) in the same year, not counting catch-up contributions.

403(b) and 457(b) plans have separate contribution limits. For 2026, you may be able to contribute up to $24,500 to a 403(b) and up to $24,500 to a 457(b), for a potential total of $49,000, not counting catch-up contributions.

You may also be able to contribute to an individual retirement account (IRA), if you meet the applicable income and eligibility requirements. For 2026, you may be able to contribute up to $24,500 to a 403(b) and up to $7,500 to an IRA, for a potential total of $32,000, not counting catch-up contributions. Traditional IRA deductions may be limited based on your income, while Roth IRA eligibility phases out at certain levels depending on your modified adjusted gross income (MAGI) and tax filing status.

If your employer offers both traditional and Roth 403(b) contributions, you can choose whether to receive a tax benefit now or potentially later in retirement. 

Traditional tax-deferred 403(b) contributions are generally made with pre-tax dollars, which can reduce your taxable income now. Roth 403(b) contributions are made with after-tax dollars, so they won't lower your taxable income today, but qualified withdrawals are generally tax-free.¹

Traditional 403(b) accounts are generally subject to required minimum distributions (RMDs) starting at the applicable age, while Roth 403(b) accounts are not subject to RMDs during the original account owner's lifetime. 

The choice between traditional and Roth contributions generally comes down to when you would prefer to receive the tax benefit. Traditional contributions make sense if you expect to be in a lower tax bracket during retirement than you are today. Roth contributions may be worth considering if you expect your tax rate to be higher in retirement or if you value tax-free qualified withdrawals.¹

403(b) withdrawals are subject to specific timing rules, designed to encourage you to leave your money invested until you retire.

You can begin taking penalty-free distributions from your 403(b) once you reach age 59½, which is considered normal retirement age by the IRS.

If you withdraw funds before age 59½, you will generally owe ordinary income tax on the amount plus a 10% early withdrawal penalty. Some exceptions apply, such as total and permanent disability, certain medical expenses, or if you leave your employer at age 55 or later.

With a 403(b), you must begin taking RMDs by age 73 (increasing to age 75 in 2033). Not taking these distributions or not taking them in the full amount can result in a 25% tax penalty, based on IRS rules. As of 2024, Roth 403(b) accounts no longer require RMDs while the owner is alive, but rules do apply to beneficiaries.

Many 403(b) plans allow you to take a loan from your own savings, which must be paid back with interest. Hardship distributions may also be available for certain financial needs, such as preventing eviction or paying funeral expenses, but you may still owe taxes and potential penalties.

If your employer offers a 403(b) plan, it's worth considering as part of your retirement savings strategy. Depending on your plan, a 403(b) may offer higher contributions than IRAs, tax-deferred growth, Roth contributions with potential tax-free withdrawals, and potential employer matching contributions. By understanding how they work, you can better determine how it fits into your overall retirement plan. To learn more, talk to your employer and review your plan documents, or consult with a financial advisor or tax professional.