What Is a 403(b) Plan: Contributions, Limits, and Withdrawals

A 403(b) plan is a tax-advantaged retirement account offered to employees of public schools, hospitals, charities, and other organizations exempt from tax under section 501(c)(3) of the Internal Revenue Code. It works much like a 401(k): you defer part of your salary into the account, choose how it’s invested, and either pay tax now (Roth) or later (traditional). For 2026, participants can defer up to $24,500 of salary, with additional catch-up amounts available depending on age and length of service.¹ The structural differences from a 401(k) mostly show up in who’s eligible, what you can invest in, and a few catch-up rules unique to long-tenured employees.

Who Can Participate

Eligibility is tied to the employer, not the employee. Three categories of organizations can sponsor a 403(b): tax-exempt organizations under section 501(c)(3) (most nonprofits, hospitals, and private universities), public school systems from elementary schools through state-funded colleges, and ministers and chaplains, whether employed by a denomination or self-employed in ministerial duties.²

If your employer offers a 403(b) to anyone, it generally has to offer the plan to almost everyone on staff. The IRS calls this the universal availability requirement, and it means your employer must give every eligible employee at least one chance per year to start contributing or change the amount deferred.³ A few groups can be excluded without violating the rule:

Part-time employees reasonably expected to work fewer than 1,000 hours in a year (roughly under 20 hours per week)
Students performing services for the school where they’re enrolled
Nonresident aliens with no U.S.-source income from the employer
Employees who can defer into another 401(k), 403(b), or 457(b) sponsored by the same employer

Churches and qualified church-controlled organizations are exempt from the universal availability rule entirely.³

Pre-Tax and Roth Contributions

Most 403(b) plans let you choose between two tax structures. Some let you split deferrals between both.

With a traditional (pre-tax) 403(b), contributions come out of your paycheck before federal income tax is calculated. If you earn $65,000 and defer $10,000, you’re taxed on $55,000 for the year. The trade-off arrives in retirement: every dollar you withdraw gets taxed as ordinary income at whatever rates apply then.⁴

A Roth 403(b) flips the timing. You pay income tax on contributions now, but qualified withdrawals in retirement come out completely tax-free, including all the investment growth.⁴ A withdrawal counts as qualified if the account has been open for at least five years and you’re at least 59½, disabled, or deceased.

The right choice depends on where you expect your tax rate to land in retirement. Early in a career, when earnings are lower than they’ll probably be later, Roth contributions lock in today’s rate. At peak earnings, with lower spending expected in retirement, the pre-tax route usually wins.

Roth Catch-Up Requirement for Higher Earners Starting in 2026

Beginning January 1, 2026, participants age 50 or older whose FICA wages from the same employer exceeded $145,000 (adjusted annually for inflation) in the prior calendar year must make all catch-up contributions on a Roth basis. The option to make those catch-up dollars pre-tax disappears. If your wages fell below that threshold, you can still choose either pre-tax or Roth for catch-up amounts. People who don’t receive FICA wages at all, such as certain clergy, are not subject to this rule.

2026 Contribution Limits

The IRS adjusts 403(b) deferral ceilings annually for inflation. For 2026, the baseline elective deferral limit is $24,500. That cap applies to the combined total of your salary deferrals across all 403(b), 401(k), and SIMPLE IRA plans you participate in during the year.¹

On top of that base, the tax code offers up to three types of additional catch-up contributions, each with its own eligibility rules:

Standard age-50 catch-up ($8,000). If you turn 50 or older by December 31, 2026, you can contribute an extra $8,000 beyond the base, for a total of $32,500 in elective deferrals.¹
SECURE 2.0 super catch-up for ages 60–63 ($11,250). If you turn 60, 61, 62, or 63 during 2026, you qualify for a higher catch-up of $11,250 instead of the standard $8,000. That brings your maximum elective deferral to $35,750.⁵
15-year service catch-up (up to $3,000). If you’ve worked for the same qualifying employer for at least 15 years, your plan may allow an additional deferral of up to $3,000 per year, subject to a $15,000 lifetime cap. It’s applied before the age-based catch-ups and is separate from them.⁶

The 15-year catch-up is only available through plans maintained by educational institutions, hospitals, health and welfare service agencies, churches, and church-related organizations. If you work for a generic 501(c)(3) that doesn’t fit those categories, your plan can’t offer this provision.⁶

Separately from your elective deferrals, the total of all contributions to your account in a year, including any employer match or nonelective employer contributions, cannot exceed the lesser of $72,000 or 100% of your includible compensation for the most recent year of service.¹ Catch-up contributions don’t count against this overall cap.

Investment Options

A 403(b) limits investment choices more tightly than most 401(k) plans. The tax code allows only two types of vehicles inside the account:

Annuity contracts issued by insurance companies and governed under section 403(b)(1). These can be fixed annuities (paying a guaranteed rate) or variable annuities (tied to underlying investment subaccounts). Annuity contracts are the original 403(b) investment and remain common in school district plans.
Custodial accounts holding mutual funds under section 403(b)(7). These hold shares of regulated investment companies. They do not include individual stocks, ETFs, or life insurance policies.²

Your employer picks the providers and specific fund lineup available. Some plans offer a single insurance company with a handful of annuity subaccounts; others provide access to a custodial platform with dozens of mutual fund families. If your plan’s menu feels limited, ask your plan administrator whether additional providers have been approved.

Fees Worth Knowing About

Fee structure depends heavily on whether your plan uses annuity contracts or mutual fund custodial accounts, and the difference can be substantial over a career.

Variable annuity contracts typically carry a mortality and expense (M&E) charge, deducted daily from your account balance. This fee covers the insurer’s guarantee of a minimum death benefit and sometimes a guaranteed annuity payout rate. Because it’s baked into the daily valuation of your investments, it never appears as a line item on your statement, which makes it easy to overlook. Many annuity contracts also layer on annual administrative or maintenance fees, often in the range of $30 to $50.

Mutual fund custodial accounts under section 403(b)(7) do not carry M&E charges since there’s no insurance wrapper. You’ll still pay each fund’s expense ratio, and some custodians charge an annual account maintenance fee that may be waived once your balance reaches a certain level. Over 30 years of contributions, even a small difference in annual fees can reduce your ending balance by tens of thousands of dollars. When evaluating your plan’s options, compare the total annual cost of each investment, not just the stated return.

Withdrawals and Required Distributions

Getting money out of a 403(b) before retirement carries real costs. Withdrawals taken before age 59½ generally trigger a 10% additional tax on top of ordinary income tax.⁷

Several exceptions let you avoid the 10% penalty even before 59½:

Separation from service during or after the year you turn 55, for distributions from that employer’s plan
Distributions due to a qualifying disability
Payments to your beneficiary or estate after your death
Substantially equal periodic payments calculated based on your life expectancy, taken at least annually
Payments to a former spouse under a qualified domestic relations order
Unreimbursed medical expenses exceeding the IRS deduction threshold
Up to $5,000 for a qualifying birth or adoption
Additional SECURE 2.0 exceptions for terminal illness, federally declared disasters, and domestic abuse, with specific dollar limits and repayment options

These exceptions are found in section 72(t) of the Internal Revenue Code.⁷

Hardship Withdrawals

Your plan may allow hardship distributions while you’re still employed, but only for specific reasons: unreimbursed medical expenses, costs to prevent eviction or foreclosure, tuition and education fees, burial or funeral expenses, certain home repairs, and expenses related to a federally declared disaster. These withdrawals are taxable as income and may still be subject to the 10% penalty if you’re under 59½.

Under SECURE 2.0, plan sponsors can now let you self-certify that you have a qualifying hardship rather than requiring you to submit extensive documentation. You’ll still need to confirm the reason for the withdrawal, the amount, and that you have no other reasonable way to cover the expense. Employers only need to investigate further if they have specific reason to doubt the certification.

Required Minimum Distributions

You can’t leave money in a traditional 403(b) forever. Required minimum distributions (RMDs) kick in starting in the year you turn 73. For anyone born in 1960 or later, that age rises to 75 beginning in 2033.⁸ If you’re still working at 73 and don’t own more than 5% of the employer, most plans let you delay RMDs until you actually retire.

Roth 403(b) accounts got a significant upgrade under SECURE 2.0. Starting in 2024, designated Roth balances in a 403(b) are no longer subject to lifetime RMD rules. Before this change, Roth 403(b) money was subject to RMDs even though Roth IRAs were not, which forced many participants to roll their Roth 403(b) into a Roth IRA just to avoid mandatory withdrawals. That workaround is no longer necessary.

Borrowing From Your Account

Many 403(b) plans allow you to borrow against your own balance, though plans are not required to offer this feature. If yours does, the loan limit is the lesser of 50% of your vested account balance or $50,000. If 50% of your balance is less than $10,000, some plans let you borrow up to $10,000 regardless.⁹

You generally must repay the loan within five years through substantially equal quarterly payments that include principal and interest. Loans used to buy a primary residence can have a longer repayment window. If you leave your job before the loan is repaid, most plans require repayment in full by the tax filing deadline for that year. A loan that goes into default is treated as a taxable distribution, so you’ll owe income tax on the outstanding balance and, if you’re under 59½, the 10% early withdrawal penalty on top of that.¹⁰

Rolling Over a 403(b)

When you leave an employer, you can generally move your 403(b) balance to another retirement account. Pre-tax 403(b) money rolls directly into a traditional IRA, a new employer’s 401(k) or 403(b), or a governmental 457(b) plan, all without triggering a tax bill.¹¹ Whether a new employer’s plan actually accepts incoming rollovers is up to that plan’s rules, so check before initiating the transfer.

You can also convert pre-tax 403(b) money into a Roth IRA, but the entire converted amount becomes taxable income in the year you do it. That can create a sizable tax bill, so people who pursue this strategy typically spread conversions over multiple years to avoid jumping into a higher bracket.

The safest way to move money is a direct (trustee-to-trustee) rollover, where funds transfer straight from one custodian to another without ever touching your bank account. If you instead take the check yourself in an indirect rollover, the plan is required to withhold 20% for federal taxes. You then have just 60 days to deposit the full amount, including making up the 20% withheld from other funds, into the new account. Fail to complete the rollover within 60 days and the entire distribution is taxable, plus you may owe the 10% early withdrawal penalty if you’re under 59½.

How a 403(b) Differs From a 401(k)

The two plans share the same 2026 deferral limit ($24,500), the same catch-up rules, and the same distribution and rollover framework. For most participants, the day-to-day experience feels nearly identical. The differences are structural:

Employer type. A 401(k) is offered by for-profit businesses. A 403(b) is limited to public schools, 501(c)(3) organizations, and certain ministers.²
Investment options. A 401(k) can offer mutual funds, ETFs, and sometimes company stock or a brokerage window. A 403(b) is limited by statute to annuity contracts and mutual fund custodial accounts.
15-year catch-up. Only 403(b) plans maintained by qualifying employers can offer the extra $3,000 per year (up to $15,000 lifetime) catch-up for long-tenured employees. No equivalent exists in the 401(k) world.⁶
ERISA coverage. Many 403(b) plans sponsored by governmental or church employers are exempt from ERISA, the federal law that imposes fiduciary standards and reporting requirements on most private-sector retirement plans. That can mean fewer protections for participants, particularly around fee transparency and investment selection.

If you’ve worked in both sectors and hold accounts in each type of plan, you can generally roll a 403(b) into a 401(k) and vice versa when you change jobs, keeping your retirement savings consolidated in one place.¹¹

1
Internal Revenue Service. IRS 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. 403(b) Plan – The Universal Availability Requirement
4
Internal Revenue Service. IRC 403(b) Tax-Sheltered Annuity Plans
5
Internal Revenue Service. Retirement Topics – 403(b) Contribution Limits
6
Internal Revenue Service. 403(b) Plans – Catch-Up Contributions
7
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
8
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
9
Internal Revenue Service. Retirement Topics – Plan Loans
10
Internal Revenue Service. Retirement Plans FAQs Regarding Loans
11
Internal Revenue Service. Rollover Chart