Who gets a 403(b)?
A 403(b), sometimes called a tax-sheltered annuity or TSA plan, can only be offered by certain tax-exempt employers. If you work for one of these, a 403(b) is probably the retirement plan on your benefits page:
- Public schools and school districts: K-12 teachers, administrators, and staff, plus public colleges and universities.
- 501(c)(3) nonprofits: charities, foundations, museums, social-service agencies, and research organizations.
- Hospitals and health systems organized as nonprofits, which is why so many nurses have a 403(b) instead of a 401(k).
- Churches and church-related organizations, which often use a close cousin called a 403(b)(9) plan.
For-profit companies cannot offer a 403(b); they use 401(k)s. A few large nonprofits offer a 401(k) instead of (or alongside) a 403(b), which is allowed, but the 403(b) remains the default plan across education, healthcare, and the nonprofit sector.
How a 403(b) works
The mechanics are the same salary deferral you would see in a 401(k). You pick a contribution amount, your employer diverts it from each paycheck into your account before federal (and usually state) income tax is calculated, and you invest it in the options on your plan menu. You pay no tax on the contributions or the growth until you withdraw the money in retirement, when withdrawals are taxed as ordinary income.
Everything else carries over too: withdrawals before age 59½ generally trigger a 10% penalty on top of income tax (with the usual exceptions, including the rule of 55 for those who leave their employer at 55 or later), required minimum distributions start at age 73, and many plans allow loans. Some 403(b) employers also match contributions, though matching is less common and usually smaller than in the corporate 401(k) world.
Because the math is identical, you can project a 403(b) balance with our 401(k) calculator: enter your salary, contribution percentage, and any match, and the compounding works exactly the same way.
One structural difference worth knowing: most 403(b) plans are individual-contract plans. Instead of the employer holding one trust for everyone, each employee opens an account (a custodial account holding mutual funds, or an annuity contract with an insurance company) with a vendor from the employer's approved list. That vendor-list structure is where the fee problems described below come from.
403(b) contribution limits for 2026
The 403(b) shares the elective deferral limit with the 401(k): $24,500 in 2026. On top of that, three separate catch-up provisions can apply, and one of them exists only in the 403(b) world.
| Limit | 2026 amount | Who qualifies |
|---|---|---|
| Elective deferral | $24,500 | Everyone |
| Age 50+ catch-up | $8,000 | Age 50 or older by December 31 |
| Ages 60-63 super catch-up | $11,250 | Age 60, 61, 62, or 63 (replaces the age 50+ amount, if the plan allows) |
| 15-years-of-service catch-up | $3,000/yr, $15,000 lifetime | 15+ years with the same qualifying employer, if the plan allows |
| Combined employee + employer | $72,000 | Overall cap on all contributions to your account |
The 15-years-of-service catch-up is unique to 403(b) plans and applies at public school systems, hospitals, churches, and health and welfare agencies. If you have 15 or more years of service with the same employer and your plan offers it, you can defer up to $3,000 extra per year. The exact amount is the smallest of three numbers: $3,000; your remaining lifetime allowance ($15,000 minus prior service catch-ups); or $5,000 times your years of service minus all your prior deferrals to that employer's plans. That last test means career-long steady savers often qualify for little or nothing, so ask your plan administrator to run the calculation. When you are eligible for both this and the age-based catch-up, the IRS requires extra deferrals to count against the 15-year catch-up first.
Two more 2026 wrinkles from SECURE 2.0: the larger $11,250 super catch-up is available only in the calendar years you are 60 through 63 (at 64 you revert to the standard $8,000), and if you earned more than $150,000 in FICA wages from your employer the prior year, your age-based catch-up contributions must go in as Roth.
The Roth 403(b) option
Most 403(b) plans now offer a Roth option alongside the traditional pre-tax one. Roth 403(b) contributions come out of your paycheck after tax, so there is no deduction today, but qualified withdrawals in retirement (after age 59½ and a 5-year holding period) are completely tax-free, growth included.
The limits are shared, not doubled: your traditional and Roth 403(b) contributions together cannot exceed the elective deferral limit. The usual guidance applies: Roth tends to win if you expect your tax rate in retirement to be as high as or higher than it is now, which is common for early-career teachers and nurses in low brackets. Unlike a Roth IRA, the Roth 403(b) has no income limit, so high earners locked out of direct Roth IRA contributions can still get Roth dollars this way.
The honest problem: annuities and fees
Here is the part most 403(b) explainers soften: a large share of 403(b) plans, especially in K-12 public schools, offer expensive products. Public school 403(b) plans are generally exempt from ERISA, the federal law that makes 401(k) sponsors fiduciaries for the investment menu. Without that duty, many districts simply maintain a list of vendors, historically dominated by insurance companies selling variable and fixed annuities, and leave teachers to be sold to.
The cost difference is not subtle. A variable annuity inside a 403(b) typically stacks several layers of fees, while a low-cost mutual fund custodian charges one small one:
- Mortality and expense (M&E) charge: often 1% to 1.3% per year, the insurance wrapper itself.
- Underlying subaccount expense ratios: commonly 0.5% to 1%+ on top of the wrapper.
- Administrative or rider fees: flat charges or another 0.1% to 0.5%.
- Surrender charges: a penalty of up to 5% to 7% for moving your money out during the first several years of the contract.
- Compare that with an index fund at a low-cost custodian: roughly 0.03% to 0.2% all-in, with no surrender penalty.
The long-run damage compounds. Take a teacher investing $500 a month for 30 years with markets returning 7% a year. In a low-cost fund, that grows to about $609,985. In an annuity charging 2% a year in stacked fees (so 5% net), the same contributions grow to about $416,129. The fees consumed roughly $193,856, about 32% of the final balance, without the market ever having a bad year. You can run your own numbers with the investment fee calculator.
None of this means every annuity is a scam or that a 403(b) is not worth using. It means the vendor you pick inside the plan matters enormously, often more than your fund selection. Check whether your vendor list includes a low-cost custodian such as Fidelity, Vanguard, or a state-run option, and read the fee disclosure before signing anything a rep brings to the teachers' lounge.
403(b) vs 401(k): what actually differs
For the saver, the two plans are near-twins on taxes and limits. The differences are mostly about who offers them and how the menus are built:
| Feature | 403(b) | 401(k) |
|---|---|---|
| Employers | Public schools, 501(c)(3) nonprofits, churches, nonprofit hospitals | For-profit companies (and some nonprofits) |
| 2026 elective deferral | $24,500 | $24,500 |
| Age 50+ / 60-63 catch-up | $8,000 / $11,250 | $8,000 / $11,250 |
| 15-year service catch-up | Yes, up to $3,000/yr if the plan allows | No |
| Typical investments | Annuities and mutual funds, vendor-list model | Mutual funds on a single employer-chosen menu |
| ERISA fiduciary protection | Often no (public schools, churches, non-matching plans) | Yes |
| Employer match | Less common, often smaller | Common |
| Vesting of employer money | Often immediate | Often graded over 2-6 years |
| Roth option | Usually available | Usually available |
Neither plan is inherently better. A 403(b) with a Vanguard or Fidelity custodial option and immediate vesting beats a mediocre 401(k); a K-12 403(b) with only annuity vendors is worse than almost any modern 401(k). The plan document and vendor list decide, not the number in the name.
The 457(b) pairing: a double contribution limit
If you work for a state or local government employer (including many public school districts, public universities, and public hospitals), you may be offered a 457(b) deferred-compensation plan alongside your 403(b). Here is the remarkable part: the two limits are separate. The 457(b) has its own $24,500 limit in 2026 that does not count against your 403(b) deferrals, so an eligible employee can defer up to $49,000 of salary across both plans, before catch-ups.
Few people can max both, but even partial use of the second plan doubles your tax-advantaged space, something private-sector workers simply do not get. Governmental 457(b)s have another perk: withdrawals after you leave the employer are not subject to the 10% early-withdrawal penalty at any age, which makes them popular with people planning early retirement. If your employer offers both plans and you can only fund one, compare fees and (if there is one) the match; if you can fund both, the combined space is one of the best deals in US retirement saving.
Vesting, and what happens when you change jobs
Your own contributions to a 403(b) are always 100% yours immediately. Employer contributions in 403(b) plans are also frequently vested immediately, a genuine advantage over the multi-year vesting schedules common in 401(k)s, though some plans do use a schedule, so check yours.
When you change schools or employers, the account stays yours. Your options are the same as with a 401(k): leave it in the old plan, roll it into your new employer's 403(b) or 401(k), or roll it into an IRA at a custodian you choose. A rollover to an IRA is often the cleanest exit from a high-fee annuity vendor, with one caution: if your money is in an annuity contract still inside its surrender period, moving it may trigger a surrender charge. Sometimes it is worth paying to escape a 2%-a-year product; run the math on how long the fee savings take to repay the charge before you decide.
What to do if your 403(b) plan is bad
A weak vendor list does not mean you should skip retirement saving. Work the problem in this order:
- Capture any match first. Even inside a mediocre plan, a 50% or 100% match beats any fee you are likely to pay.
- Pick the best vendor on the list. Get the full vendor list from HR or your district (it is public information for public schools) and look for a low-cost custodial option: Fidelity, Vanguard, Aspire, or a state-sponsored plan. Even one decent vendor on a list of ten changes everything.
- Use an IRA alongside. Beyond the match, you can put up to $7,500 (2026) into an IRA at any custodian you want, with full control of investments. A Roth IRA is the usual first choice for teachers and nurses in moderate brackets.
- Then come back to the 403(b) for volume. Once the IRA is maxed, even a middling 403(b) usually beats a taxable account for additional savings, because tax deferral offsets moderate fees. A 2%+ annuity is the exception; do the fee math first.
- Lobby for a better option. Vendor lists change when employees ask. A short letter to the district or HR requesting a low-cost custodian, signed by a few colleagues, has fixed more bad 403(b) menus than any regulation.
The worst outcome is not choosing a slightly expensive fund; it is not contributing at all. Start with what the plan offers today, and improve the container as you go.