A 403(b) plan is a form of retirement savings account available to teachers and certain other nonprofit employees in the United States.
Unfortunately, this simple definition does little to answer the question that’s top of mind for most teachers: How much income does one need in retirement to have a comfortable life?
The amount varies from person to person depending on their needs and preferences. But, for most teachers, the defined benefit (pension) plan provided by their employer will not be enough. That’s where the supplemental retirement savings of a 403(b) come in.
Equable Insights
Equable is not a financial advisor. We don’t sell retirement services, nor are we official retirement planners. The information in this article is intended to be educational content. You should discuss these special situations and any specific questions about your own retirement planning with a financial advisor.
- 403(b) Plan for Teachers: A type of supplemental retirement savings account
- Contributions: Roth (after-tax) or traditional (pre-tax)
- 2026 Contribution Limit: $24,500
What is a 403(b) Retirement Plan for Teachers?
A 403(b) is a type of tax-advantaged defined contribution retirement plan. It allows employees to contribute money, usually diverted as a percentage of each paycheck, into an individual account on either a pre-tax or post-tax basis while they are still working. This money is then invested by the account holder, typically in mutual funds or annuities, based on individual preference and risk tolerance.
In some cases, a school district might also contribute to a 403(b) plan, but districts usually only contribute when it’s the primary retirement plan option. Indeed, there are some states in which 403(b) plans are the primary retirement plan for teachers in lieu of a pension, but they more often act as supplemental retirement savings accounts.
403(b) Contribution Limits in 2026
As of the 2026 tax year, teachers can divert as much as $24,500 of their salaries into a 403(b) plan. Employers may also elect to match a portion of the employee’s contribution, either as a percentage or dollar amount. The overall limit for both employee and employer contributions is $72,000 in 2026.
403(b) Catch-Up Contribution Limits
A 403(b) plan may also allow catch-up contributions for savers nearing retirement. Workers age 50 or older can, depending on plan rules, make annual catch-up contributions of $8,000 in 2026. Those age 60 to 63 can instead make annual catch-up contributions of $11,250.
There are also special IRS rules for employees who’ve completed at least 15 years of service with the same employer. Depending on the specific plan and its rules, some employees may be able to contribute an extra $3,000 per year, up to a lifetime limit of $15,000.
Traditional 403(b) vs. Roth 403(b)
In traditional 403(b) accounts, the account holder makes pre-tax contributions and pays taxes on those contributions and any investment earnings only when they withdraw the money in retirement. The amount of pre-tax money directed toward the traditional 403(b) in a given year reduces one’s taxable income by an equivalent amount.
Some employers also offer Roth 403(b)s, in which the account holder makes after-tax contributions. Since that money is taxed before it’s contributed, there is no upfront tax break but qualified withdrawals of contributions and earnings in retirement are tax-free.
Why Might Teachers Invest in Supplemental 403(b) Retirement Plans?
The “supplemental” aspect of 403(b) plans is important to keep in mind.
For most teachers, a primary retirement plan is usually a pension. But they may also come in the form of a guaranteed return, defined contribution, or hybrid plan. The reason teachers might invest in a 403(b) as a supplemental retirement plan is that most primary teacher retirement plans are not designed to provide the employee’s only source of retirement income.
Many state pension plans assume that a teacher will also have Social Security and/or some source of personal retirement savings. As a result, most individuals enrolled in a pension plan will not wind up with adequate retirement savings from that pension.
Teachers may also move around and don’t often accumulate a full career of teaching in a single state. This reduces the total net pension benefits earned over the course of their career.
Supplemental savings, such as those offered via a 403(b), can be an important tool for ensuring an adequate level of retirement income.
Use Equable’s Retirement Security Report to find your state’s teacher retirement plan and see if it provides adequate income before supplemental savings.
Risks of Investing in 403(b) Retirement Plans
There are dozens of financial firms that sell 403(b) services, many of which are reasonable and can support retirement savings. But many others are predatory and sell retirement plans that charge high fees to invest money.
For example, a common problem with 403(b) plans is that financial firms may try to lock teachers into a plan that charges fees if the teacher pulls their money out (a “surrender charge”). Other problematic 403(b) plans only include investment options that charge high management fees.
A few states have created statewide systems for offering 403(b) plans to teachers and other public workers. In most states, however, districts manage the availability of supplemental retirement savings.(403bwise, a nonprofit that has no affiliation with Equable Institute, grades different financial companies offering supplemental plans for teachers in its “district plan rating project.”)
403(b) Best Practices for Employers
Some of the best employer practices for avoiding these problems include:
- hiring an independent advisor to select the investment options that are made available to teachers, ensuring that 403(b) investments have reasonable and transparent costs
- limiting the total number of financial firms who can offer services, forcing investment vendors to compete with each other and offer the lowest management prices
- requiring a regular process of bidding by financial firms to ensure there is regular, quality competition
403(b) Withdrawal Rules for Teachers
The money in a 403(b) plan is generally withdrawn based on IRS rules for using the money as retirement income. Typically, this means you can withdraw funds starting at 59 1/2 years old.
A 10% penalty is typically applied to money withdrawn before then, but there are hardship exemptions. There is also a point where individuals must withdraw a minimum amount of money from traditional 403(b) plans yearly, known as required minimum distributions (RMDs). The remaining funds can continue to accumulate investment returns until they’re depleted or the account holder passes away. Roth 403(b)s are not subject to RMDs during the account holder’s lifetime.
What is the Difference Between 403(b), 401(k), and 457(b) Plans?
There are special taxation rules in the U.S. tax code that set up these different kinds of retirement savings accounts, which lead to different designations such as 403(b), 401(k) or 457(b).
For the most part, however, there isn’t a big difference between these plans when it comes to how an individual can save for retirement. All three allow employees to contribute money on a tax-advantaged basis.
The main difference between 401(k) and 403(b) or 457(b) plans is who offers them. Generally, the private sector and for-profit companies offer 401(k) defined contribution plans. Government organizations and nonprofit organizations offer 403(b) or 457(b) plans. For example, Equable Institute is a nonprofit, so we offer our employees a 403(b) plan.
The Pros and Cons of 403(b) Plans
There are various ways for employers to offer retirement benefits, each with different benefits and drawbacks depending on the objectives for offering retirement benefits in the first place. For employees, supplemental 403(b) plans also come with several key pros and cons.
Pros
- Adequate Retirement Income Security: 403(b) plans can support retirement income adequacy by providing an additional source of income. This is important for the majority of teachers who won’t work long enough in a single state to earn a full pension.
- Funding and Budgetary Predictability: There is 100% budgetary predictability for school district employers with 403(b) plans. Employers don’t usually contribute to supplemental 403(b) plans, so it doesn’t complicate budgeting.
- Retention: Choosing to offer (or not offer) a supplemental retirement plan likely does not impact teacher retention.
- Employee Career Mobility/Portability: 403(b) plans are usually portable between employers. This means if a teacher moves to another job or state, they can generally roll over the funds in their 403(b) plan to their new employer’s plan or another individual retirement account (IRA).
Cons
- High Fees: 403(b) plans are sometimes offered by predatory financial companies who charge high fees and lock up money invested with them. This may be a negative contributor to adequate retirement income security.
- Limited Investment Options: Compared to IRAs and some 401(k)s, which tend to have greater investment options, investments in 403(b) plans are often limited to mutual funds and annuities.