A 403(b) plan, also known as a tax-sheltered annuity (TSA), is a retirement savings plan designed for employees of public schools, nonprofit organizations, and certain religious institutions. Similar to a 401(k), it allows pre-tax contributions with tax-deferred growth until withdrawal, typically after age 59½. The 403(b) often emphasizes annuity-based investments, such as fixed or variable annuities, though modern plans may include mutual funds. Contribution limits align with 401(k) plans ($23,000 in 2025 for those under 50), with additional catch-up contributions for employees with 15+ years of service. Employers may offer matching contributions, though this is less common. The 403(b) is a critical tool for educators and nonprofit workers to build retirement wealth, offering tax advantages and flexibility. However, employees must be mindful of potential high fees, especially with annuities, and limited investment options. Careful plan selection and coordination with other retirement accounts can maximize the 403(b)’s benefits for long-term financial security.
- What is a 403(b) retirement plan?
Answer: It is a tax-sheltered retirement plan for public school and nonprofit employees, offering pre-tax contributions and tax-deferred growth. - Who can participate in a 403(b) plan?
Answer: Employees of public schools, nonprofits, and certain religious organizations are eligible to participate. - How does a 403(b) differ from a 401(k)?
Answer: A 403(b) often focuses on annuities and serves nonprofit employees, while a reminded to contribute to both a 457(b) and a 401(k) or 403(b) simultaneously, potentially doubling contribution limits.
