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What Is a 403(b)? The Nonprofit 401(k)
A 403(b) is a retirement plan for employees of public schools, hospitals, churches, and tax-exempt nonprofits. It functions almost exactly like a 401(k) — same 2026 contribution limit of $24,500, same $7,500 catch-up from age 50, same treatment at tax time — but the differences that exist matter a lot.Same Skeleton, Different Skin
Contributions are salary-deferred and either pre-tax or Roth, depending on your plan. Investment options are limited to annuity contracts and mutual funds — no brokerage windows in most plans. Money grows tax-deferred (or tax-free in a Roth 403(b)), and withdrawals in retirement are taxed as ordinary income on the pre-tax side.
The Vendor Problem
403(b) plans are famous for selling through insurance agents, and annuity-based options can carry surrender charges and internal costs above 1% or even 2%. Before enrolling, find the plan's fund lineup and look for a low-cost index option. If the cheapest option costs more than about 0.5% annually, check whether the district also offers a 457(b) — many public schools do — which may have better pricing.
Two Catch-Ups Unique to 403(b)s
The 15-year rule: employees with at least 15 years of service at the same school, hospital, or nonprofit can defer an extra $3,000 per year, up to a $15,000 lifetime extra. The 457(b) pairing: if your employer also offers a 457(b), you can contribute the full limit to both plans in the same year — $24,500 each in 2026, or $49,000 combined, plus catch-ups. No other pairing of workplace plans allows doubling like this.
Rollover Rules
Money leaves much like a 401(k): direct rollovers to an IRA or a new employer plan are routine. One quirk — church-plan 403(b) money and certain governmental amounts have their own exceptions, and pre-1989 employer contributions may carry vesting oddities. Check the summary plan description before moving anything.
The Practical Playbook
Max any employer match first, choose the lowest-cost fund family in the lineup, and if a 457(b) exists, split contributions between the two plans rather than stacking one. Teachers retiring with a pension should also model how withdrawals stack on top of pension income, because bracket planning matters more when a guaranteed income floor already exists.
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