# 403(b) Plan

By [vbnc](https://paragraph.com/@vbnc) · 2022-07-28

---

What Is a 403(b) Plan?
----------------------

The term 403(b) plan refers to a retirement account designed for certain employees of public schools and other [tax-exempt](https://www.investopedia.com/terms/t/tax_exempt.asp) organizations. Participants may include teachers, school administrators, professors, government employees, nurses, doctors, and librarians.

The 403(b) plan, which is closely related to the better-known [401(k)](https://www.investopedia.com/articles/retirement/08/401k-info.asp) plan, allows participants to save money for retirement through [payroll deductions](https://www.investopedia.com/terms/p/payroll-deduction-plan.asp) while enjoying certain tax benefits. There's also an option for the employer to match part of the employee's contribution.

### KEY TAKEAWAYS

*   403(b)s are retirement savings plans that serve employees of public schools and tax-exempt organizations.
    
*   Contributions to 403(b) plans are made through payroll deductions.
    
*   The IRS limits the amount that employees can contribute to their 403(b) plans.1
    
*   The advantages of a 403(b) include faster vesting of funds and the ability to make additional catch-up contributions.
    
*   Investment choices may be more limited with a 403(b) and some accounts offer less protection from creditors than 401(k)s.
    

How 403(b) Plans Work
---------------------

As noted above, individuals employed by schools and other tax-exempt organizations can save for retirement by contributing to a 403(b) plan through payroll deductions. The plan is akin to the [401(k) plan](https://www.investopedia.com/terms/1/401kplan.asp) used by private-sector employees. Participants can include:

*   Employees of public schools, state colleges, and universities
    
*   Public school employees of Indian tribal governments
    
*   Church employees
    
*   Employees of tax-exempt [501(c)(3) organizations](https://www.investopedia.com/terms/1/501c3-organizations.asp)
    
*   Ministers and clergy members2
    

The 403(b) plan has the same caps on yearly contributions that come with 401(k) plans. The maximum contributions allowed are $19,500 and $20,500 for the 2021 and 2022 tax years. The plan also offers $6,500 [catch-up contributions](https://www.investopedia.com/terms/c/catchupcontribution.asp) for those age 50 and older.3 Combined employee and employer contributions are limited to the lesser of $58,000 in 2021 and $61,000 in 2022 or 100% of the employee's most recent yearly salary.1

Participants must reach age 59½ before withdrawing funds or get slapped with an [early withdrawal](https://www.investopedia.com/terms/e/earlywithdrawal.asp) penalty.4 

If your employer offers a 403(b) and a 401(k) you can contribute to both but your aggregate contribution cannot be more than the annual limit ($19,500 in 2021 and $20,500 in 2022)—not counting any catch-up contributions.5

Special Considerations
----------------------

Although it is not very common, your job situation could end up giving you access to both a [401(k) and a 403(b) plan](https://www.investopedia.com/ask/answers/100314/what-difference-between-401k-plan-and-403b-plan.asp). Each offers employees a [tax-advantaged](https://www.investopedia.com/terms/t/tax-advantaged.asp) way to save for retirement, but investment choices are often more limited in a 403(b) plan than a 401(k). And remember, 401(k)s serve private-sector employees.

But unlike a 401(k), the 403(b) plan also offers a special plan for those with 15 or more years of service with the same employer (see below).

---

*Originally published on [vbnc](https://paragraph.com/@vbnc/403-b-plan)*