403(b) Retirement Plan

403(b) retirement plan is a retirement account for government employees, teachers, professors, nurses, doctors, librarians, and certain tax-exempt organizations. There isn’t much of a difference between a 401(k) and a 403(b). The only difference is while 401(k) is for private-sector employees, 403(b) is for certain employees.

It would come to mind that 403(b) is better than 401(k). This is very far from the truth. While 401(k) plans offer lots of choices for investing, 403(b) plans are limited on investing options. Same as 401(k), you can opt to get a traditional or a Roth 403(b) retirement plan.

With a traditional 403(b), you don’t pay taxes on the money you invest until you begin making withdrawals. On the other hand, with Roth 403(b), your contributions are taxed but you don’t pay taxes when you’re retired.

Regardless of the kind of retirement plan you have — whether it be a traditional 403(b) or a Roth 403(b), you should wait until you’re at the age of 59 1/2. If you withdraw money before you’re over the age limit, you will be subject to early withdrawal penalties. For both traditional and Roth 403(b) retirement plans, the early withdrawal penalty is 10% of the amount withdrawn. Also, you will pay income taxes on the money you withdrew regardless of the plan.

What is a 403(b) Retirement Plan?

Although it is similar to a 401(k), there are many differences. So what is exactly a 403(b) retirement plan? A 403(b) retirement plan is a retirement account for certain tax-exempt organization’s and government employees. 403(b) plans are mostly available for librarians, teachers, administrators, healthcare professionals, and government employees. Investment options are quite limited but it can benefit you more than a 401(k) in the long run.

What is the difference between 403(b) and 401(k)?

As far as how much a person can contribute to a 401(k) and 403(b) is concerned, the contribution limits are the same As for the differences, there isn’t much between the two. In fact, there isn’t much that stands out to help you distinguish 403(b) from a 401(k). If you’re working for a non-profit organization or government, a 403(b) is going to be a better option for you as the administrative processes that apply to 401(k) doesn’t apply to 403(b). This allows you to keep the administrative costs lower for 403(b). If you’re eligible to open a 403(b), we suggest doing so to keep the costs low so you can invest more in your future years.

What is 403(b) contribution limit?

As of now — for 2020 — 403(b) contribution limit is $19,500. If aged 50 or older, the contribution limit is increased by an additional $6,500 as part of the catch-up contribution, totaling the 403(b) contribution limit to $26,000. The contribution limit that applies to 403(b) is also the same for 401(k).

403(b) Calculator

There is a lot that goes into calculating not just 403(b) but any other retirement plan. The following will be used to determine your total:

  • Annual Salary
  • Amount to Contribute
  • Your current age
  • Age of retirement
  • Current balance on retirement account (403(b) in this case)
  • Rate of Return (annually)
  • Investment fee (annual)
  • Employer contribution if offered


A worker at the age of 30 who opened a 403(b) plan with $40,000 annual salary hoping to retire at the age of 60 and 10 percent to contribute annually would total at around $480,000. This is — of course — without any fees. If the annual investment fee would be just shy of 1 percent, the total would be about $405,000. This is determined by assuming the worker has a 7 percent annual rate of return and a 2 percent annual salary increase.

Without the annual salary increase, the total would be around $390,000. Below, you can enter your own figures to calculate 403(b). Make sure to enter every data point with the correct amounts so the calculation is accurate.

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