403(b) plans

Learn more about this retirement savings option available to employees of 501(c)(3) organizations.

What is a 403(b) retirement plan?

403(b) plans are retirement savings plans that can only be established by a public school system or a tax-exempt organization as described in IRS code section 501(c)(3), such as nonprofit hospitals, charities or religious organizations.

Two types of 403(b) retirement plans are available:

  • ERISA (Employee Retirement Income Security Act) 403(b) plans – Most 501(c)(3) nonprofit organizations, except for churches and certain qualified religious-controlled organizations, are subject to ERISA. They require an annual IRS Form 5500 filing and are subject to certain ERISA nondiscrimination testing requirements.
  • Non-ERISA 403(b) plans – These plans are salary deferral agreements between individuals and designated plan providers. Only public education institutions and governmental nonprofit organizations can offer non-ERISA plans, as they are exempt from ERISA. Churches and certain religious-controlled organizations are also exempt unless they officially elect to be covered under ERISA.

Key differences between 401(k) and 403(b) retirement plans

The biggest difference between 401(k) and 403(b) retirement plans comes down to your employer. While a 401(k) can be set by any type of business, a 403(b) can only be set by a 501(c)(3) nonprofit.

401(k)s and 403(b)s have similar salary deferral limits and catch-up amounts for participants ages 50 and up. However, 403(b) plans can offer another type of catch-up contribution that isn't available to 401(k)s called a service-based catch-up. Service-based catch-up contributions can be offered to participants with 15 or more years of service at the same employer, resulting in the potential for an additional $3,000 deferral for up to five years (lifetime maximum of $15,000).

Last, unlike 401(k)s and ERISA 403(b)s, a non-ERISA 403(b) plan can't accept employer contributions. In fact, your employer won't be able to provide much support at all with a non-ERISA 403(b) plan because the regulations prohibit it.

Maximum 403(b) contribution limits

As with most retirement savings accounts, contribution limits can change each year. You can contribute up to the lesser of 100% of taxable compensation or the applicable limit shown below.

Maximum 403(b) contributions limits
 Age 49 and youngerAge 50 and older1Age 49 and youngerAge 50 and older1
Salary deferral limit$23,000$30,500$22,500$30,000
Overall contribution limit2
(no service-based contribution)
Overall contribution limit2
(with service-based contribution)3

1 Includes $7,500 (2024) and $7,500 (2023) for age 50 catch-up contribution.
2 Overall contribution limit represents combined limit for all employee and employer contributions.
3 Includes $3,000 for service-based catch-up contribution, which is subject to a lifetime maximum of $15,000.

Taxation of 403(b) contributions 

Contributions to 403(b) plans can realize some tax benefits. For example:

  • Pretax contributions
    Pretax salary deferrals are excludable from your federal income tax and thus not subject to federal income tax withholding. These contributions have the potential to grow tax deferred.
  • Roth contributions
    Some plans allow employees to make Roth deferrals. Roth deferrals aren't excluded from federal income tax at the time of the contribution, but they have the potential to grow tax free.
  • After-tax contributions
    Your plan may also allow you to make after-tax (non-Roth) contributions. After-tax contributions are subject to the overall contribution limit, but they're not subject to the lower salary deferral limit, potentially offering you a way to save even more for retirement. With after-tax contributions, earnings are considered pre-tax and subject to taxes upon withdrawal.

Taxation of 403(b) distributions

Determining what's taxable when taking a distribution from a 403(b) will depend on what type of money is in the plan. Of course, eligible rollovers to an IRA are not subject to taxation. 

  • Pretax money
    Any distribution not rolled over will be taxed as ordinary income. A 10% early withdrawal penalty will apply if you're younger than 59½, unless you qualify for a penalty exception.
  • Roth money
    Qualified distributions of Roth contributions and earnings can be taken tax free.
  • After-tax money
    The portion of the distribution that is composed of earnings will be taxed as ordinary income and subject to a 10% early withdrawal penalty if taken before age 59½, unless you qualify for a penalty exception. Your distribution will include a mix of after-tax contributions and pretax earnings, based on the percentage each represents of your account's balance.

403(b) plan required minimum distributions

Generally, you must begin taking a required minimum distribution (RMD) from your 403(b) plan the year you turn 73 and each subsequent year. If you are still working for the employer sponsoring the plan, you may delay your RMDs until April 1 of the year following retirement, if the plan allows it.

Additionally, RMDs are not required for your Roth 403(b), starting in 2024.

Interested in a 403(b) retirement plan? We can help.

Our financial advisors will work closely with you to evaluate all the retirement options available to you. We invite you to meet with an Edward Jones financial advisor and get started today.

Important information:

This information is for educational purposes only. Edward Jones, its employees and financial advisors cannot provide tax or legal advice.