403(b) Plan
Definition
A tax-advantaged retirement plan for employees of public schools, universities, hospitals, and certain nonprofits, functioning similarly to a 401(k) but with some unique provisions.
The 403(b) plan is the nonprofit and education sector's equivalent of the 401(k). Teachers, professors, hospital workers, and nonprofit employees save for retirement through 403(b) plans with the same contribution limits ($23,500 in 2025 plus $7,500 catch-up for 50+).
Historically, 403(b) plans were limited to annuity contracts from insurance companies. While annuities are still common in 403(b) plans, many now offer mutual funds and other investment options similar to 401(k) plans. Some 403(b) plans still have limited investment menus, high-fee annuity products, and surrender charges that 401(k) participants wouldn't tolerate.
The unique 403(b) "15-year rule" allows employees with 15+ years of service at the same employer to contribute an additional $3,000/year (up to a $15,000 lifetime cap) above the standard limit. This is separate from the age-50 catch-up, potentially allowing eligible participants to save $34,000+ annually.
Employer matching in 403(b) plans varies widely. Many nonprofits and schools offer generous matches (some contributing 10%+ of salary regardless of employee contributions). Others offer no match at all. Always contribute enough to capture the full employer match — it's an immediate 50-100% return on your contribution.
When evaluating a 403(b), check: investment options (are low-cost index funds available?), fees (annuity-based plans often have high expenses), and whether you can choose the provider. Some employers allow you to select your own 403(b) provider, enabling access to lower-cost options like Fidelity, Vanguard, or TIAA.
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Frequently Asked Questions
Is a 403(b) the same as a 401(k)?
Functionally very similar — same contribution limits, same pre-tax/Roth options, same early withdrawal penalties. Key differences: 403(b) plans may still use annuity contracts with higher fees, and the 15-year rule allows extra contributions for long-tenure employees. Investment options in 403(b)s are sometimes more limited.
How do I avoid high fees in my 403(b)?
Check if your employer allows you to choose your own 403(b) provider — select one with low-cost index funds (Fidelity, Vanguard, TIAA). If locked into a high-fee plan, contribute enough to capture any employer match, then prioritize IRA contributions before adding more to the 403(b).