403(b) Plan Guide for Nonprofit Employees

Quick Answer: Explore the 403(b) plan for nonprofit employees. Learn about tax benefits and safe money alternatives. Start planning your retirement today!

What Is a 403(b) Retirement Plan?

A 403(b) plan, also called a tax-sheltered annuity (TSA) plan, is available to employees of public educational institutions, 501(c)(3) nonprofits, churches, and certain government entities. Like a 401(k), participants contribute pre-tax dollars that grow tax-deferred until retirement.

For 2024, the contribution limit is $23,000 ($30,500 with catch-up contributions at age 50+). Employees with 15 or more years of service at certain qualifying organizations may be eligible for an additional $3,000 annual catch-up provision.

403(b) vs. 401(k): Key Differences

While 403(b) and 401(k) plans are structurally similar, there are notable differences:

• Who qualifies: 403(b) is for nonprofit, government, and educational employees; 401(k) is for private sector employees
• Investment options: 403(b) plans often feature annuity contracts in addition to mutual funds
• 15-year catch-up: Long-tenured employees at certain 403(b) sponsors may qualify for extra contributions
• ERISA exemption: Some 403(b) plans are exempt from ERISA, affecting participant protections

Safe Money Strategies for 403(b) Plan Holders

Many 403(b) plans offer fixed annuity options that provide guaranteed growth without market risk — an excellent foundation for a safe money retirement strategy. As you approach retirement, working with a safe money financial advisor can help you evaluate whether to keep funds in your 403(b), roll over to an IRA, or use assets to fund a guaranteed income stream through an annuity product.

Explore our broader library of retirement planning resources and retirement calculators to map your strategy.

Maximizing Your 403(b) for Retirement

To maximize your 403(b), start by contributing enough to capture any available employer match, then increase contributions over time as your salary grows. As you near retirement, review your plan's investment menu for stable value or fixed annuity options that offer protection from market declines. Many teachers and nonprofit workers supplement their 403(b) with a 457(b) plan — if available — because the two plans have independent contribution limits. This can nearly double your annual tax-deferred savings potential. A safe money advisor can help you navigate the distribution phase and determine when and how to access your 403(b) funds most efficiently.

Frequently Asked Questions About 403(b) plan guide

What is a 403(b) plan and who is eligible for it?

A 403(b) plan is a retirement savings plan designed for employees of nonprofit organizations, public schools, and certain government entities. Eligibility typically includes teachers, nurses, and other employees of tax-exempt organizations, allowing them to save for retirement with tax advantages.

What are the tax benefits of contributing to a 403(b) plan?

Contributions to a 403(b) plan are made on a pre-tax basis, which can lower your taxable income for the year. Additionally, the money in the account grows tax-deferred until withdrawal, meaning you won't pay taxes on earnings until you take distributions in retirement.

What safe money alternatives can I consider for my 403(b) plan?

Within a 403(b) plan, you can explore safe money alternatives such as fixed annuities, which provide a guaranteed return and can help protect your principal. These options can be particularly appealing for retirees seeking stability and predictable income in their retirement years.

How can I start planning for retirement with my 403(b) plan?

To start planning for retirement with your 403(b) plan, first assess your current financial situation and retirement goals. Consider maximizing your contributions, exploring safe money alternatives, and regularly reviewing your investment choices to ensure they align with your risk tolerance and retirement timeline.