What is a 403(b) Plan and How do You Use it?

You’ve almost surely heard of a 401(k) plan, but what in the world is a 403(b) plan? Simply, a 403(b) plan is a tax-advantaged retirement account for employees of schools, churches, and nonprofits.

A 403(b) plan (aka tax-sheltered annuity, TSA) is similar to a 401(k) plan, but it has a couple of important differences.

403(b) Plans

Here’s how they work: if your employer is a public school, including a state university, a non-profit, or a church, your organization may have a 403(b) you can use to save for retirement.

In order to offer a 403(b), your non-profit has to be tax-exempt under the 501(c )3 code section of the IRS. (To find out if your nonprofit is 501(c )3 exempt, search here).

If you get a job with a nonprofit, school, or church, your organization is required by law to tell you if they have a 403(b) plan.

Most of the time, you should be able to start contributing to your 403(b) plan as soon as you start working. The sooner you start the more time your money has to grow and the bigger your savings will be.

The IRS stipulates that you’re always 100% vested in your automatic enrollment contributions. That means the money you contribute to a 403(b) plan is always yours, even if you leave the organization right away.

Your contributions to your 403(b) plan aren’t taxed unless you decide to contribute to a Roth plan (see below for more details).