There is no such thing as a “403k plan.” The name is a mash-up of two real retirement accounts: the 401(k), offered by private employers, and the 403(b), offered by public schools, tax-exempt nonprofits, and certain ministers. If you work for a school district, hospital, charity, or church, the plan you have access to is a 403(b). It works much like a 401(k): you defer part of your paycheck, the money grows tax-deferred (or tax-free in a Roth), and you pay tax on withdrawals in retirement. For 2026, the standard employee deferral limit is $24,500, with additional catch-up amounts for older workers.
403(b) vs. 401(k): Which One Applies to You
The difference comes down to your employer. A 401(k) is available to virtually any private-sector employer. A 403(b) is restricted by Section 403(b) of the Internal Revenue Code to three categories:1Office of the Law Revision Counsel. 26 USC 403 – Taxation of Employee Annuities
- Tax-exempt organizations with 501(c)(3) status, including hospitals, charities, private foundations, and religious organizations.
- Public educational institutions, meaning public K-12 districts, state colleges, and public universities.
- Certain ministers described in IRC Section 414(e)(5)(A), who can participate even if their employer doesn’t sponsor a plan.
If you work for a for-profit company, you won’t have a 403(b) regardless of your title. If you work for one of the eligible employers above, you likely don’t have a 401(k). Either way, one of the two is what you’re actually asking about.
How Contributions Are Taxed
Money enters a 403(b) through elective deferrals: you tell your employer to route part of each paycheck into the account. How that money is taxed depends on which flavor you choose.
Traditional Pre-Tax Contributions
Contributions come out of your paycheck before federal income tax is calculated. A teacher earning $65,000 who defers $10,000 reports only $55,000 in taxable wages that year. The account grows tax-deferred, and you pay income tax on withdrawals in retirement.
Roth Contributions
Many 403(b) plans now offer a Roth option. Contributions are made with after-tax dollars, so there’s no upfront deduction. Qualified withdrawals of both contributions and earnings come out tax-free, provided you’re at least 59½ and the account has been open for five years.
Mandatory Roth Catch-Up for High Earners Starting in 2026
Starting in 2026, a SECURE 2.0 provision requires that catch-up contributions be made as Roth if you earned more than $145,000 in FICA wages from the plan-sponsoring employer during the prior year (the threshold adjusts for inflation, and for 2026 it applies to 2025 wages exceeding $150,000). This applies to the standard age-50 catch-up and the enhanced catch-up for ages 60 through 63. It does not apply to the 15-year service catch-up unique to 403(b) plans.
2026 Contribution Limits and Catch-Ups
Standard Deferral
For 2026, you can defer up to $24,500 of your salary into a 403(b). That cap covers the combined total of traditional and Roth contributions.2Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
Age-50 Catch-Up
If you turn 50 or older during 2026, you can contribute an additional $8,000, bringing your personal deferral ceiling to $32,500.2Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
Enhanced Catch-Up for Ages 60 Through 63
SECURE 2.0 created a higher tier for participants who turn 60, 61, 62, or 63 during the plan year. For 2026, those workers can contribute a catch-up of $11,250 instead of $8,000, for a total deferral limit of $35,750.3IRS.gov. 2026 Amounts Relating to Retirement Plans and IRAs, as Adjusted for Changes in Cost-of-Living Once you turn 64, you go back to the regular age-50 amount.
The 15-Year Service Catch-Up
This one is unique to 403(b) plans. If you’ve worked for the same eligible employer for at least 15 years, you may be able to contribute an additional amount on top of the standard limit. The practical ceiling is $3,000 per year with a $15,000 lifetime cap.4Internal Revenue Service. 403(b) Plans – Catch-Up Contributions You can use it in the same year as an age-based catch-up if you qualify for both.5Internal Revenue Service. Retirement Topics 403b Contribution Limits
Total Annual Additions
Employer matching or nonelective contributions don’t count against your $24,500 personal limit, but there is a separate overall cap. For 2026, total additions to a participant’s account from all sources cannot exceed $72,000.3IRS.gov. 2026 Amounts Relating to Retirement Plans and IRAs, as Adjusted for Changes in Cost-of-Living Catch-up contributions sit outside that cap.
Investment Options in a 403(b)
A 403(b) typically offers two categories: annuity contracts issued by insurance companies (fixed or variable), and custodial accounts holding mutual fund shares. The investment menu tends to be narrower than what you’d find in a 401(k). Older plans at school districts sometimes offer annuity products only. If your plan feels limited, ask whether a custodial account option is available.
Borrowing From Your 403(b)
If your plan allows loans, you can borrow the lesser of $50,000 or 50% of your vested balance. If half your balance is under $10,000, you can still borrow up to $10,000. Repayment must happen within five years with at least quarterly payments, and loans used to buy a primary residence can carry a longer term.6Internal Revenue Service. Retirement Topics – Plan Loans Leave the job before the loan is repaid and any outstanding balance is generally treated as a taxable distribution, with the 10% early withdrawal penalty if you’re under 59½.
Withdrawals Before Age 59½
You generally cannot pull money out of a 403(b) before 59½ without owing regular income tax plus a 10% early withdrawal penalty.7Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions Several exceptions waive the 10%:
- Separation from service in or after the year you turn 55. Distributions from that employer’s plan are penalty-free. One of the most useful exceptions for early retirees.
- Total and permanent disability.
- Substantially equal periodic payments based on your life expectancy, sometimes called a 72(t) distribution.
- Unreimbursed medical expenses above a percentage of your adjusted gross income.
Hardship Withdrawals
Some plans allow hardship withdrawals while you’re still employed, but only for an immediate and heavy financial need. IRS safe harbor events include:8Internal Revenue Service. Retirement Topics – Hardship Distributions
- Medical expenses for you, your spouse, dependents, or a beneficiary.
- Costs to purchase a primary residence, though not ongoing mortgage payments.
- Tuition and related expenses for the next 12 months of postsecondary education.
- Payments to prevent eviction or foreclosure on your primary residence.
- Funeral expenses.
- Certain repair costs for damage to your primary residence.
Hardship withdrawals are still taxable, the 10% penalty still applies if you’re under 59½ and no other exception fits, and you cannot repay the money back into the plan.
Required Minimum Distributions
Under SECURE 2.0, you must begin taking Required Minimum Distributions in the year you turn 73.9Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs That age is scheduled to rise to 75 beginning in 2033. The annual amount is calculated from IRS life expectancy tables and your December 31 account balance from the prior year.
Missing an RMD is costly. The excise tax on the shortfall is 25%, dropping to 10% if you correct it within a two-year window.9Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs RMDs apply to traditional 403(b) balances only. SECURE 2.0 eliminated the RMD requirement for designated Roth accounts in 403(b) and 401(k) plans, so a pure Roth 403(b) has no forced withdrawals during your lifetime.
Rolling Over a 403(b) After You Leave
When you leave the employer, you can roll your 403(b) into a traditional IRA, a Roth IRA, another 403(b), or a 401(k) at a new employer, as long as the receiving plan accepts rollovers.10IRS.gov. Rollover Chart Rolling a pre-tax balance into a Roth IRA is allowed, but the full amount becomes taxable income that year.
There are two ways to move the money:
- Direct rollover. The money moves straight from the old plan to the new account. Nothing is withheld and no deadline applies. Almost always the better choice.
- Indirect rollover. You get a check, and the plan withholds 20% for federal taxes. You then have 60 days to deposit the full original amount (including that withheld portion, which you replace from other funds) into the new account. Miss the deadline or fail to replace the 20%, and the shortfall is treated as a taxable distribution, subject to the 10% penalty if you’re under 59½.11Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
The indirect route is where people get burned. Say your balance is $40,000. The plan withholds $10,000 and sends you a check for $30,000. To avoid tax on the full $40,000, you have to deposit $40,000 into the new account within 60 days, meaning you cover the $10,000 gap from your own pocket. You’ll get the withholding back at tax time, but the cash flow squeeze catches people off guard.