A 403(b) plan is a tax-advantaged retirement savings plan available to employees of public schools, certain nonprofit organizations, government agencies, and some tax-exempt entities under IRS Section 501(c)(3). It is similar to a 401(k) plan but specifically designed for employees of public education institutions, certain hospitals, churches, and nonprofit organizations
. Key features of a 403(b) plan include:
- Employees contribute a portion of their salary through payroll deductions, often on a pre-tax basis, allowing the money to grow tax-deferred until withdrawal
- Employers may also contribute to employees' accounts
- Contributions can be made to either traditional pre-tax accounts or Roth accounts, where contributions are taxed upfront but qualified withdrawals are tax-free
- Investment options are typically limited to those chosen by the employer and may include mutual funds and annuities
- Withdrawals generally cannot be made without penalty before age 59½, except under certain hardship or loan provisions
- Annual contribution limits are set by the IRS and combined with other retirement plan contributions if applicable
- The plan was originally created to help public school and university employees save for retirement, especially those without pensions
In summary, a 403(b) plan is a retirement savings vehicle tailored for employees of public schools and certain nonprofits, offering tax benefits and employer-sponsored savings options similar to a 401(k) plan but with some differences in eligibility and investment choices
