A 403(b) plan — sometimes called a tax-sheltered annuity (TSA) — is a workplace retirement plan available to employees of:
- Public schools and universities
- 501(c)(3) tax-exempt nonprofit organizations
- Cooperative hospital service organizations
- Certain ministers and self-employed chaplains
Structurally, it works like a 401(k): you contribute pre-tax dollars (or Roth after-tax dollars if the plan offers it), the money grows tax-deferred, and withdrawals in retirement are taxed as ordinary income. The same contribution limits apply.
Contribution limits
The IRS sets identical contribution limits for 403(b) and 401(k) plans (IRS.gov/retirement-plans/plan-sponsor/403b-tax-sheltered-annuity-plans):
| 2025 | 2026 | |
|---|---|---|
| Employee elective deferral | $23,500 | $24,500 |
| Catch-up (age 50–59, 64+) | +$7,500 | +$8,000 |
| Special catch-up (age 60–63) | +$11,250 | +$11,250 |
| Total with employer contributions (annual additions limit) | $70,000 | $71,000 |
The 2026 figures reflect IRS inflation adjustments announced in late 2025. The special catch-up contribution for ages 60–63 was introduced by the SECURE 2.0 Act.
The 15-year rule: a 403(b)-specific provision
Employees with 15 or more years of service with the same eligible employer may be able to contribute an additional $3,000/year above the standard limit — up to a lifetime maximum of $15,000 extra — under the 15-year rule. This is unique to 403(b) plans and not available in 401(k) plans. Eligibility depends on the employer’s plan terms and prior contributions; not all 403(b) plans implement this provision.
403(b) vs 401(k): key differences
| Feature | 403(b) | 401(k) |
|---|---|---|
| Available to | Schools, nonprofits, certain tax-exempt orgs | Most private-sector employers |
| Contribution limit | Same (IRS limits apply equally) | Same |
| Employer matching | Common but not universal | Common but not universal |
| Investment options | Often limited to annuities and mutual funds | Broader range typical |
| 15-year catch-up rule | Available (if employer allows) | Not available |
| ERISA protections | Not always subject to ERISA (governmental plans) | Subject to ERISA |
| Vesting schedules | Varies by plan | Varies by plan |
The main practical difference most employees notice is investment options. Many 403(b) plans historically offered annuity products with higher fees than the index fund options common in 401(k) plans. This is improving — more school districts and nonprofits now offer plans with low-cost index funds — but it varies significantly by employer.
Roth 403(b)
If your employer’s plan allows it, you can make Roth (after-tax) contributions to a 403(b). The same annual contribution limit applies across both traditional and Roth contributions combined. Roth contributions grow tax-free and qualified withdrawals in retirement are tax-free — the same structure as a Roth 401(k).
Withdrawals and required minimum distributions
Withdrawals before age 59½ are generally subject to ordinary income tax plus a 10% early withdrawal penalty, with the same exceptions as 401(k) plans (death, disability, substantially equal periodic payments, separation from service after age 55, etc.).
Required minimum distributions (RMDs) begin at age 73, consistent with 401(k) and other qualified retirement plans under the SECURE 2.0 Act.
Evaluating your 403(b) plan
If you participate in a 403(b):
- Check the investment menu — look for total expense ratios below 0.20% for index funds
- Check for an employer match and understand the vesting schedule
- If your plan only offers high-fee annuity products, consider supplementing with a Roth or traditional IRA for a wider investment selection
- Ask HR whether the plan includes low-cost index fund options — plan design has been improving in the nonprofit sector
A 403(b) with a good investment menu and employer match is as powerful as any 401(k). The key variable is what your employer has negotiated with the plan provider.