403(b) Retirement Plans: Contribution Limits, Withdrawals, and Rollovers

A 403(b) retirement plan is a tax-advantaged savings account offered to employees of public schools, tax-exempt nonprofits under Section 501(c)(3), and certain ministers. You can defer part of your salary into the plan before federal income tax, let the money grow tax-deferred, and pay tax only when you withdraw it, usually in retirement. For 2026, the elective deferral limit is $24,500, with additional catch-up room for older workers and long-tenured employees.¹

Which Employers Can Offer a 403(b)

Federal tax law restricts 403(b) sponsorship to three types of employers:

Tax-exempt organizations recognized under Section 501(c)(3), including charities, religious organizations, hospitals, and private nonprofit schools.²
Public school systems operated by a state, a political subdivision, or a state agency, including state colleges and universities.²
Certain ministers, who can participate regardless of whether the employer itself is tax-exempt, provided they meet the federal tax law definition.²

A for-profit business cannot sponsor a 403(b), even if it works in healthcare or education. If a nonprofit loses its 501(c)(3) status, it can no longer maintain the plan.

Who Is Eligible to Contribute

Once an employer offers a 403(b), it usually cannot restrict participation to a favored group. Under the Universal Availability rule, if any employee is allowed to defer salary, nearly all employees must get the same chance.³

A short list of workers can be excluded without violating the rule: employees who normally work fewer than 20 hours per week, students performing services for the school where they are enrolled, and nonresident aliens with no U.S.-source income from the employer.³ The employer also has to give every eligible worker a meaningful written notice of the right to contribute.

Automatic Enrollment for Newer Plans

Under the SECURE 2.0 Act, 403(b) plans established after December 29, 2022, generally have to enroll eligible employees automatically. The default deferral must start between 3% and 10% of pay and rise by one percentage point each year until it reaches at least 10%, capped at 15%. Employees can always opt out or pick a different rate.⁴

Governmental plans, church plans, employers with 10 or fewer employees, businesses less than three years old, and any plan that existed before December 29, 2022, are exempt.⁴ Because most public school 403(b) plans are governmental and many nonprofit plans predate the cutoff, the rule reaches fewer employers than it appears to at first glance.

2026 Contribution Limits

The IRS updates 403(b) limits each year for inflation. For 2026:

The elective deferral limit is $24,500. That is the maximum you can contribute from your own paycheck, whether pre-tax, Roth, or a mix.¹
The total annual addition limit is $72,000, or 100% of your compensation if that is lower. This ceiling covers your deferrals plus any employer contributions.¹

If you participate in more than one employer plan during the year, the $24,500 deferral limit applies across all of them combined. Going over pushes the excess back into your taxable income and, if it isn’t removed promptly, triggers additional IRS penalties.⁵

Catch-Up Contributions

403(b) plans offer more catch-up options than most retirement accounts. Depending on your age and how long you have worked for the employer, you may qualify for one or more:

Age 50 or older: an extra $8,000 in 2026, raising your personal deferral cap to $32,500.⁶
Ages 60 through 63: a higher catch-up of $11,250 instead of $8,000, raising the deferral cap to $35,750. This “super catch-up” was created by SECURE 2.0.¹
15 years of service with the same qualifying employer: an additional $3,000 per year, up to a $15,000 lifetime cap. This one is unique to 403(b) plans.⁶

The age-based and 15-year catch-ups can stack. A 62-year-old teacher with 20 years at the same district could defer $24,500 plus $11,250 plus $3,000, for a personal total of $38,750 in 2026. That stacking option is not available in a 401(k).

The Roth 403(b) Option

Many 403(b) plans now include a Roth account alongside the traditional pre-tax one. You pay income tax on Roth contributions going in, but qualified withdrawals in retirement, including all investment growth, come out tax-free. The plan keeps separate records for the two types of money.⁷

The $24,500 deferral limit is combined across pre-tax and Roth. You do not get $24,500 of each. A Roth distribution is generally tax-free once you are at least 59½ and have held the account for at least five years.

Starting in 2027, the IRS will require higher-income participants to make catch-up contributions on a Roth basis only. The threshold is tied to prior-year FICA wages under SECURE 2.0. If your plan does not offer Roth, affected workers will lose the ability to make catch-up contributions at all.⁸ If you are a high earner in a 403(b), it is worth confirming that your plan has a Roth account or plans to add one before then.

Where the Money Is Invested

A 403(b) can only hold three types of investments under the law:

Annuity contracts purchased from insurance companies, with fixed or variable returns. These are the original 403(b) vehicle and still dominate many public school plans.⁹
Custodial accounts that hold mutual fund shares. These generally offer lower fees and more flexibility than annuity contracts.⁹
Retirement income accounts, available only to church employees.⁷

You cannot buy individual stocks, bonds, or real estate directly through a 403(b). Everything has to route through one of these structures. Modern custodial accounts do give participants access to a wide selection of index and target-date funds at competitive expense ratios.

Watch out for surrender charges on annuity contracts. A common schedule starts around 7% in the first year and drops by roughly a percentage point each year, hitting zero after six or seven years. Most contracts let you withdraw up to 10% of the account value each year without penalty. The insurance company imposes these charges, and they apply on top of any tax hit. If your employer adds a new low-cost provider, check the surrender terms before transferring existing balances.

Getting Money Out Before Retirement

Loans

If the plan allows loans, you can borrow the lesser of $50,000 or 50% of your vested account balance. A floor lets you borrow up to $10,000 even if that is more than 50% of the balance.¹⁰

Repayment must run at least quarterly and finish within five years, except for loans used to buy your primary home, which get a longer window.¹⁰ Leaving your job with an outstanding balance generally causes the remainder to be treated as a taxable distribution.

Hardship Withdrawals

A hardship withdrawal is available only for an immediate and heavy financial need. The IRS recognizes six safe-harbor reasons: medical expenses; purchase of a primary home (not mortgage payments); tuition and related costs for the next 12 months; payments to prevent eviction or foreclosure; funeral expenses; and repairs to a primary residence after damage.¹¹

You can only take the amount you actually need. The money cannot be rolled over or repaid to the plan. It counts as ordinary income, and if you are under 59½, the 10% early withdrawal penalty applies too.¹¹

Emergency Personal Expense Distributions

Since 2024, SECURE 2.0 also allows a lighter option if your plan permits it: up to $1,000 per calendar year for an unforeseeable personal or family emergency, without the 10% early withdrawal penalty. Income tax still applies.¹²

You can repay this distribution within three years and effectively unwind the tax. If you do not repay it or make equivalent new contributions, you cannot take another emergency distribution from that plan for three calendar years. Even if your plan does not offer the feature explicitly, you can claim the penalty exemption on your tax return if you qualify.¹²

Withdrawals in Retirement

You can generally take money from a 403(b) without penalty at age 59½. Other triggering events include separating from the sponsoring employer, becoming permanently disabled, or death. Withdrawals before 59½ that do not qualify for an exception carry a 10% early distribution penalty on top of ordinary income tax.⁷

Every dollar withdrawn from a traditional pre-tax 403(b) is taxed as ordinary income in the year you receive it. That covers both your original contributions and all the investment growth.

Required Minimum Distributions

You cannot leave money in a 403(b) indefinitely. Starting at the required beginning age, the IRS makes you take a minimum amount out each year, calculated from IRS life expectancy tables and your prior year-end balance. If you turn 73 before January 1, 2033, your required beginning age is 73. If you turn 73 on or after that date, it is 75.¹³

Missing an RMD is expensive. The IRS charges a 25% excise tax on the amount you should have taken. If you catch the mistake and withdraw the shortfall within the correction window, usually two years, the penalty drops to 10%.¹⁴ The prior rate was 50%, so the current one is a real improvement, but a calendar reminder is still worth setting.

Rolling Over a 403(b) When You Leave

You do not have to cash out a 403(b) when you leave the employer. Pre-tax 403(b) money can move into a traditional IRA, another 403(b), a 401(k) or other qualified plan, a governmental 457(b), a SEP-IRA, or a SIMPLE IRA (the SIMPLE IRA must have been open at least two years). It can also go into a Roth IRA, but the rolled amount becomes taxable income for the year of the conversion.¹⁵

A direct rollover, in which the money moves custodian to custodian without your handling it, avoids the mandatory 20% federal withholding that applies when you take the check yourself. If you do take the check, you have 60 days to deposit it in the new account or the whole amount is treated as a taxable distribution. Requesting a trustee-to-trustee transfer is the cleaner path.

Beneficiaries After Your Death

Naming a beneficiary is one paperwork step with real consequences. How fast the account must be emptied depends on who inherits:

A surviving spouse can roll the 403(b) into their own IRA or retirement plan, stretch distributions over their own life expectancy, or use the 10-year rule.¹⁶
Other eligible designated beneficiaries, including minor children (until they reach majority), people who are disabled or chronically ill, and anyone not more than 10 years younger than you, can stretch distributions over their life expectancy.¹⁶
Most other beneficiaries, including adult children, siblings, and friends, must withdraw the entire account within 10 years of the account holder’s death.¹⁶

The 10-year rule came from the original SECURE Act in 2019 and eliminated the lifetime stretch for most non-spouse beneficiaries. Leaving a large 403(b) to adult children under that timeline can push them into higher tax brackets, which is worth raising with a tax professional well before retirement.

1
Internal Revenue Service. Notice 2025-67 – 2026 Amounts Relating to Retirement Plans and IRAs
2
Office of the Law Revision Counsel. 26 USC 403 – Taxation of Employee Annuities
3
Internal Revenue Service. Issue Snapshot – 403(b) Plan – The Universal Availability Requirement
4
Federal Register. Automatic Enrollment Requirements Under Section 414A
5
Internal Revenue Service. Consequences to a Participant Who Makes Excess Annual Salary Deferrals
6
Internal Revenue Service. Retirement Topics – 403(b) Contribution Limits
7
Internal Revenue Service. Retirement Plans FAQs Regarding 403(b) Tax-Sheltered Annuity Plans
8
Internal Revenue Service. Treasury, IRS Issue Final Regulations on New Roth Catch-Up Rule, Other SECURE 2.0 Act Provisions
9
Office of the Law Revision Counsel. 26 USC 403 – Taxation of Employee Annuities
10
Internal Revenue Service. 403(b) Plan Fix-It Guide – Loan Amounts and Repayments Under IRC Section 72(p)
11
Internal Revenue Service. Retirement Topics – Hardship Distributions
12
Internal Revenue Service. Notice 2024-55 – Certain Exceptions to the 10 Percent Additional Tax Under Code Section 72(t)
13
Legal Information Institute. 26 USC 401(a)(9) – Required Distributions
14
Office of the Law Revision Counsel. 26 USC 4974 – Excise Tax on Certain Accumulations in Qualified Retirement Plans
15
Internal Revenue Service. Rollover Chart
16
Internal Revenue Service. Retirement Topics – Beneficiary