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What Is 403(b)

403(b) plans are a type of retirement savings plan specifically tailored for employees of non-profit organizations, schools, and certain public entities. These plans offer a convenient way for eligible employees to bolster their retirement savings while enjoying various tax benefits.

403(b) Eligibility

403(b) plans are available to employees of tax-exempt organizations classified under Section 501(c)(3) of the Internal Revenue Code. Teachers, school administrators, professors, government employees, nurses, doctors, and librarians are among those typically eligible.

403(b) Contributions

  • Employee Contributions: Participants can contribute a portion of their pre-tax income to the 403(b) plan. These contributions reduce taxable income, offering upfront tax savings.
  • Employer Contributions: Some employers offer matching contributions, further enhancing the employee’s retirement savings. The terms and conditions vary by organization.
  • Contribution Limits: The IRS sets annual contribution limits. For 2023, the limit is $20,500 for individuals under 50 and $27,000 for those aged 50 or above.


403(b) plans offer a variety of investment options including annuities and mutual funds. Participants can customize their investment portfolios based on their risk tolerance, investment goals, and time horizon.

Tax Advantages

  • Tax-Deferred Growth: Investments in a 403(b) plan grow tax-deferred until withdrawal, allowing the savings to compound over time.
  • Tax Deductions: Contributions are tax-deductible, reducing the participant’s taxable income for the year.


  • Age Restriction: Participants can start taking distributions at age 59½. Early withdrawals may be subject to taxes and penalties.
  • Required Minimum Distributions (RMDs): Starting at age 72, participants must begin taking RMDs, which are calculated based on life expectancy and account balance.

Loans and Hardships

Some 403(b) plans allow participants to take loans or hardship withdrawals in specific circumstances. However, these come with conditions and potential penalties, impacting the account’s long-term growth.


403(b) plans are a valuable retirement savings tool for employees of non-profit and certain public sector entities. With various tax advantages and the potential for employer matching, participants can build a substantial nest egg for retirement. It’s crucial to consider individual financial circumstances and consult with a financial advisor to make informed decisions about participating in and contributing to a 403(b) plan.


A 403(b) plan, also known as a Tax-Sheltered Annuity (TSA) plan, is a retirement savings plan available to employees of public schools, certain ministers, and employees of certain tax-exempt organizations. Participants can make salary-deferred contributions to the plan.

Contributions are made to a 403(b) plan on a pre-tax basis through salary deferral agreements between the employee and employer. This means the contributions are deducted from your paycheck before taxes are applied, reducing your taxable income.

For 2023, the contribution limit for a 403(b) plan is $22,500. Individuals aged 50 and over are eligible for an additional “catch-up” contribution of $7,500, bringing their total contribution limit to $30,000.

Yes, many 403(b) plans allow participants to take loans against their account balance, subject to certain limits and conditions. Loans must generally be repaid within five years.

Yes, withdrawals made before age 59½ are generally subject to a 10% early withdrawal penalty in addition to income tax, unless a qualifying exception applies.

Investment options in a 403(b) plan typically include mutual funds and annuities. The specific options available depend on the plan.

A Roth 403(b) allows participants to make after-tax contributions to their 403(b) account. Withdrawals of contributions and earnings are tax-free in retirement, provided certain conditions are met.

When you leave your job, you can leave your 403(b) account with your former employer, roll it over to an IRA or to a new employer’s retirement plan, or cash it out (subject to taxes and potential penalties).

Once you retire, you can begin taking distributions from your 403(b) plan. You can choose to take lump-sum distributions, annuitize your account balance, or take periodic withdrawals.

Starting at age 72, you are required to begin taking minimum distributions from your 403(b) plan each year, based on your life expectancy and account balance.

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