Understanding What a 403(b) Plan Is

photo credit: Christopher Dick

If you’ve started working for an employer like a non-profit organization, school, church or hospital, you might be eligible to use a 403(b) plan for your retirement savings. Many people are still in the dark as to what a 403(b) plan entails, but the main similarities and differences to a 401(k) are not so complicated.

Most important to know is that most recent 403(b) plans are almost identical to 401(k) plans, because these days they usually allow you to choose from a number of different investments and to get the company to match your additional contributions. However, 403(b) plans that were set up a longer time ago tend to be more different, because they usually don’t allow a choice of investments or employer matches; those kind of plans are generally referred to as tax sheltered annuities or TSAs.

One other difference is that 403(b)s often include a fifteen year catch-up clause. That means that if you have been employed by the same employer for fifteen years, you can contribute up to $3,000 extra. Other than that, there are few fundamental differences between most modern 403(b) plans and the more familiar 401(k), but of course, check your paperwork to be sure.