What Is a 403(b) Plan and How to Contribute to It

Nov 05, 2023 By Susan Kelly



When it comes to saving for retirement, there are various options available to employees, and one such option is the 403(b) plan. This plan is a tax-sheltered retirement savings plan specifically designed for employees of public schools, colleges, universities, hospitals, and certain other tax-exempt organizations. In this article, we will delve into the details of what a 403(b) plan is, its benefits, how to contribute to it, and frequently asked questions about this retirement savings vehicle.

What Is a 403(b) Plan?

A 403(b) plan is a retirement plan offered to employees of public schools and certain tax-exempt organizations. It is similar to a 401(k) plan in that it allows employees to contribute a portion of their salary to the plan on a pre-tax basis, meaning the contributions are deducted from the employee's paycheck before taxes are calculated. The earnings on the investments within the plan grow tax-deferred until withdrawn during retirement.

Benefits of a 403(b) Plan

There are several benefits to participating in a 403(b) plan:

Tax Savings: Contributions to a 403(b) plan are made with pre-tax dollars, which lowers your taxable income for the year and potentially reduces your tax bill.

Tax-Deferred Growth: The money invested in a 403(b) plan grows tax-deferred, meaning you don't pay taxes on the earnings until you withdraw the funds during retirement.

Employer Match: Some employers may offer a matching contribution to your 403(b) plan, essentially giving you free money for your retirement savings.

Portable: If you leave your job, you can typically roll over your 403(b) plan balance into another qualified retirement plan, such as an IRA or your new employer's plan.

How to Contribute to a 403(b) Plan

Contributing to a 403(b) plan is relatively straightforward:

Enroll in the Plan: First, you need to enroll in your employer's 403(b) plan. This typically involves filling out a form provided by your employer or the plan administrator.

Determine Your Contribution Amount: Decide how much you want to contribute to the plan each pay period. Keep in mind that there are annual contribution limits set by the IRS, which may change from year to year.

Select Your Investments: Choose how you want your contributions to be invested. Most 403(b) plans offer a range of investment options, including mutual funds, annuities, and target-date funds.

Monitor Your Investments: Periodically review your investments to ensure they are still aligned with your risk tolerance and retirement goals.

Frequently Asked Questions (FAQs)

Q: Can I withdraw money from my 403(b) plan early?

A: Generally, withdrawing money from your 403(b) plan before age 59½ may result in a 10% early withdrawal penalty from the IRS, in addition to regular income taxes on the withdrawn amount. However, there are certain exceptions to this rule, such as withdrawals due to hardship or reaching age 55 and separating from service.

Q: Can I contribute to both a 403(b) plan and a 401(k) plan?

A: If you have two jobs, one with a 403(b) plan and the other with a 401(k) plan, you can contribute to both plans. However, your total contributions to both plans are subject to the annual contribution limits set by the IRS.


A 403(b) plan is a valuable retirement savings tool for employees of public schools and tax-exempt organizations. By contributing to a 403(b) plan, you can take advantage of tax savings, tax-deferred growth, potential employer matching contributions, and portability. Understanding how to contribute to a 403(b) plan and monitoring your investments are key steps in building a secure retirement nest egg.

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Remember, retirement planning is crucial for securing your financial future. A 403(b) plan can be a powerful tool in your retirement savings arsenal. Be sure to take full advantage of its benefits and consult with a financial advisor if you have any questions or need personalized guidance.

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