Table of Contents

403(b) vs. Roth IRA: What’s the Difference?

Each has its own pluses and minuses

By

澳洲幸运5官方开奖结果体彩网:Jane Meacham

Updated December 01, 2024

Reviewed by

Thomas J. Catalano

Fact checked by

Suzanne Kvilhaug

Part of the Series

Guide to 403(b) Retirement Plans

The Benefits of a 403(b) Plan

What Is a 403(b) Plan?

403(b) vs. Other Account Types

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403(b) vs. Roth IRA: An Overview

Both 403(b𝕴) plans and Roth individual retirement accounts (IRAs) are designed to help you save for retirement.

A 403(b) plan can only be offered to employees of public school systems, nonprofit organizations, and some churches and hospitals. Conversely, a Roth IRA is an individual, personal account opened through a broker o༒r financial institution.

Discover the differences between these two retirement savings vehicles and how you can 澳洲幸运5官方开奖结果体彩网:optimize their use.

Key Takeaways

A 403(b) and Roth individual retirement account (IRA) are vehicles used for retirement investing and saving.
Employers of public schools, certain nonprofits, and tax-exempt organizations can offer their employees a 403(b) account.
403(b) and Roth IRAs have different rules and maximum contribution limits.

403(b)

Both 401(k) plans and 澳洲幸运5官方开奖结果体彩网:403(b) plans are available through employers, offering their employees an excellent opportunity to save for retirement. However, these plans also pay you extra money through 澳洲幸运5官方开奖结果体彩网:matching benefits. Matching benefits from employers match the amount you contribute to the plan, often dollar for dollar, up to a specified limit.

A 403(b) plan’s 澳洲幸运5官方开奖结果体彩网:investment options are decided by your employer. An employee who invests in a 403(b) must choose among the investments available within the plan. Each employer’s 403(b) plan may differ, so it’s important to read the fine print and understand the options. Besides matching benefits, many plans offer special plan account options, loans, and other provisio💝ns that can allow for accessible cash.

The 澳洲幸运5官方开奖结果体彩网:Internal Revenue Service (IRS) establishes annual contribution limits for 403(b) plans, which can increase with annual cost-of-living adjustments. In 2025, you can contribute up to $23,500.

Employees over the age of 50 have the option to contribute an extra $7,500 in 澳洲幸运5官方开奖结果体彩网:catch-up contributions for a total of $31,000 in 2025. Comprehensively, employees and employers can contribute a combined total of $70,000.

How 403(b) Plans Are Taxed

A 403(b) plan deducts scheduled contributions from your paycheck before taxes are calculated. These 澳洲幸运5官方开奖结果体彩网:pretax contributions act as a type of tax deduction, lowering your taxable income.

For example, an individual who earns $3,000 in a pay period and falls into a 15% tax bracket pays $450 in income tax. If that same individual contributes $500 to a 403(b) plan, the tax is calculated on an income of $2,500, 🃏bringing the tax bill down to $375.

Using these calculations, the 403(b) participant makไes a significant retirement account contribution and saves $75 in🤡 taxes at the time of the contribution. The savings will be taxed when withdrawn in retirement.

Important

Contributions to 403(b) plans are made with pretax dollars, meaning you will pay tax on distributions, while contributions to Roth IRAs are made with after-tax income, resulting in tax-free distributions.

Because 403(b) contributions are made pretax, you must pay taxes on the withdrawals made in retirement. Distributions can begin without penalty at age 59½. You'll pay income taxes on the distributions based on your marginal tax rate at the time of the withdrawals.

As another tax advantage, 403(b) plans offer tax-deferred earnings growth, meaning dividends, interest, and capital gains earned over the years accumulate tax-free until you withdraw the money in retirement.

Roth IRA

You can open an individual Roth IRA as a personal account through most 澳洲幸运5官方开奖结果体彩网:brokerage companies in the U.S., including Charles Schwab, Vanguard, Fidelity, and E-Trade. You have many 澳洲幸运5官方开奖结果体彩网:investment choices unless it is held within a 403(b) plan.

A financial institution called a plan sponsor or administrator typically manages the investments of your 403(b) on behalf of your employer. 澳洲幸运5官方开奖结果体彩网:If you leave an employer, a 403(b) account usually remains open, but many investors will often transfer the funds for consolidation purposes. Conversely, a Roth IRA held at a 澳洲幸运5官方开奖结果体彩网:financial institution does not face management adjustments🅘 if you change jobs.

Roth IRA Contribution Limits

In 2025, you can contribute a maximum of $7,000 to a Roth IRA. If you are age 50 or older, you can contribute an additional $1,000 in catch-up contributions or $8,000 in total.

Tip

A Roth IRA doesn't have the advantage of matching benefits unlike a 403(b).

Roth IRA Income Limits

The Internal Revenue Service (IRS) has established restrictions on whether you can contribute to a Roth IRA based on your income and tax-filing status.

File Taxes as Married Filing Jointly

In 2025, if you are married and filing jointly, you can contribute the maximum amount if your 澳洲幸运5官方开奖结果体彩网:modified adjusted g♛ross income (M𝄹AGI) is less than $236,000.
If your income falls in the $236,000 to $246,000 range, you can contribute a reduced amount.
If you earn more than $246,000, you cannot contribute in 2025.

File Taxes as Single or Head of Household

If you file single or head of household, you can contribute the maximum amount if you earn less than $150,000 in 2025.
If you earn between $150,000 and $165,000, you can contribute a reduced amount.
If you earn more than $165,000, you cannot contribute in 2025.

If you are married, filing separately, and lived with your spouse at any time during the year, you can't contribute if your MAGI is $10,000 or higher. There are no income limits for a 403(b), although there are contribution limits from salary each year.

2025 Roth IRA Contribution Limits and Income Thresholds
Filing Status	2025 MAGI	Contribution Limit
Married filing jointly (or qualifying widow(er))
	Less than $236,000	$7,000 ($8,000 if age 50 and over)
	$236,000 to less than $246,000	Begin to phase out
	$246,000 or more	Ineligible for direct Roth IRA
Married filing separately (and you lived with your spouse at any time during the year)
	Less than $10,000	Begin to phase out
	$10,000 or more	Ineligible for direct Roth IRA
Single, head of household, or married filing separately (and you didn’t live with your spouse at any time during the last year)
	Less than $150,000	$7,000 ($8,000 if age 50 and over)
	$150,000 to less than $165,000	Begin to phase out
	$165,000 or more	Ineligible for direct Roth IRA

How Roth IRAs Are Taxed

Roth IRA contributions use 澳洲幸运5官方开奖结果体彩网:after-tax contributions, meaning you 𝔍cont🎉ribute from your paycheck after you have paid income taxes on the money. In other words, you don't receive any upfront tax deduction.

Earnings grow tax-free, and you pay no taxes on your withdrawals in retirement. You can also withdraw your contributions tax-free after the account’s 澳洲幸运5官方开奖结果体彩网:five-year anniversary if all other qualifications are met.

Choosing the Right Retirement Savings Tool

When considering a 403(b) versus a Roth IRA, having both accounts can be beneficial when planning your retirement savings. However, you𓄧 may want to choose which to prioritize when allocating your funds.

Whether or not you🍌 want to max out your 403(b) contributions before contributing to your Roth depends on your financial situation and whether you want to have upfront 403(b) tax benefits or pretax contributions.

A 403(b) account is generally the most optimal choice if it offers employer matching, since this represents free money paid by your employer.🦩 You will have to pay taxes on these funds in retirement, so keep your expected tax rate in mind then and subtract accordingly for future projections.

Due to the lower annual contribution limit, opening a Roth IRA early can help you benefit from tax-free earnings growth and the withdrawal benefits after the five-year anniversary, in which you can withdraw your contributions—but not earnings—before age 59½ without penalty.

Can I Have Both a 403(b) and a Roth IRA?

Yes, you can have both 澳洲幸运5官方开奖结果体彩网:retirement accounts. However, the Roth IRA has an upper income limit for how much you can earn in a year, but you can still contribute to your 403(b) plan, which has no income limit.

Can I Keep My Roth IRA If I Change Jobs?

Yes. An IRA exists separately from employer-sponsored plans. Typically, they are held with a broker or bank and depend on 🍒contributionܫs you make, independent of your employer.

How Much Can I Contribute to My 403(b)?

The 403(b) contribution limit for 2025 is $23,500. If you are 50 and over, you may make additional catch-up contributions of up to $7,500.

What Is the 403(b) Five-Year Post-Severance Provision?

A potential feature of a 403(b) plan is receiving five-year post-severance contributions in the plan from the employer after employment ends. In general, these contributions must meet the following criteria:

Made for an employee for up to five years after their employment ends.
Based on includible compensation for the employee’s last year of service, separate from amounts contributed by the employer to their 403(b) account.
For an employee working less than full-time, compensation should include a period that would constitute a year of service.

The Bottom Line

Roth IRAs and 403(b) plans are complementary savings tools that can help you build wealth retirement. While Roth IRAs allow your contributions to grow tax-free, you can contribute more to your 403(b) if you're employed by an organization that offers these plans. In addition to higher limits, 403(b) plans may offer employer matching contributions, which represent free money toward your retirement. Using both tools is a wise strategy for your retirement.

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