403bs

403bs are tax-advantaged retirement plans designed for employees of certain nonprofit organizations, including public schools, many religious and charitable organizations, and some ministers. The term originated from the former designation “tax-sheltered annuity” and has since evolved to the broader 403(b) framework. These plans are intended to provide a means for employees at eligible employers to save for retirement on a tax-advantaged basis.

Eligibility and structure vary by employer, but generally a 403(b) plan is available to employees of eligible public schools, 501(c)(3) organizations, and certain religious groups. Contributions are typically made through elective salary deferrals, though some plans may allow additional employer contributions or non-elective contributions under specific rules. Investment options traditionally centered on annuity contracts and mutual funds, though many plans now offer a wider range of investments.

Tax treatment depends on the chosen contribution type. Traditional 403(b) contributions are made on a pre-tax basis, reducing current taxable income and allowing tax-deferred growth. Roth 403(b) options are available in many plans, permitting after-tax contributions with tax-free qualified distributions in retirement. Withdrawals generally follow standard retirement-account rules: penalties may apply for early distributions, and required minimum distributions begin at a specified age.

Plans may include catch-up provisions for employees with longer service histories or those nearing retirement. Rollovers to other qualified plans or IRAs are typically allowed when leaving an eligible employer. Overall, 403bs share similarities with 401(k) plans but are tailored to the nonprofit and public-service sectors.