What is a 403(b) Plan?
A 403(b) plan is a retirement savings vehicle for employees of public schools and certain tax-exempt organizations, including churches or hospitals. It functions much like a 401(k) but is aimed directly at workers in the nonprofit and public sectors.
In a 403(b), each time money is siphoned from an employee’s paycheck, it can be directed for future retirement needs and then gradually earn interest (in many cases that money is invested on a pre-tax basis).
How a 403(b) Plan Works
Once a qualified employee signs up for the 403(b) plan, they’ll allow a specific percentage of their paychecks to be invested into the plan. Those contributions are generally taken right out of your paycheck automatically, which can be a painless way to save some money for retirement over time.
Some employers also match your contributions, although that is less common in the nonprofit world than at private companies with 401(k)s.
Similar to a 401(k), there might also be a Roth 403(b) option, which would enable employees to contribute after-tax dollars and then make tax-free withdrawals in retirement (provided certain conditions are met).
403(b) Contribution Limits for 2025 And there are some proposed changes to make you aware of!
The IRS has established 403(b) plans and imposed annual contribution limits. The anticipated limits for the 2025 tax year would be:
Under age 50: $23,000
50 and older: $30,500 (which includes a $7,500 catch-up contribution)
Staff who have worked 15 years or longer at a member institution are also eligible to make special catch-up contributions that are specific only to 403(b)s.
As always, check with your employer or plan provider, as contribution limits can differ and rules change.
403(b) vs. 401(k)
Feature 403(b) Plan 401(k) Plan Employer Type Public schools, nonprofits Private sector Contribution Limits Same as 401(k) Same as 403(b) Catch-Up Provisions Yes (including special 15-year rule ) Yes (age-based catch-up only) Investment Options Often limited to annuities & mutual funds Broader range, depending on provider
Why Invest in a 403(b) Plan?
Tax Savings: Contributions lower taxable income (traditional) withdrawal.
Growth of Your Money Is Tax Free: You pay no taxes on investment gains until you withdraw; the money grows in your account tax-free.
Retirement Security: Aids in long-term financial stability.
Easy Payroll Deductions: Just put it on and forget the rest.
Roth, optional: Pay tax now, take it out tax-free later.
Who is Eligible for a 403(b)?
Who: You may qualify for a 403(b) plan if you work for either:
Public schools or school districts
Colleges and universities
Hospitals or healthcare systems (nonprofit)
Religious organizations
Other 501(c)(3) tax-exempt organizations
Related Glossary Terms
Wondering what payroll deductions do to your time off? Refer to our page on Accrued Leave.
Curious to know how you get pigeonholed by your employer, for tax purposes? Learn about full owner info for an EIN.
Planning around work holidays? Check the 2025 Federal Holidays calendar to manage personal time in a smart way.
Want 403(b) Contribution Reporting on Your Paystub?
As an educator, health care worker or nonprofit employee, you need to track your retirement savings, as well as payroll deductions.
Use our free paystub maker to instantly generate a complete, professional-looking paystub that outlines your 403(b) contributions, taxes and benefits in just a snap.
