403(b) Defined Contribution Retirement Plans

A 403(b) Retirement Savings Plan allows you to save and invest money for retirement with tax benefits. The value of the account depends on the amount of money you contribute and its investment performance over time.

What is a 403(b) Plan?

A 403(b) retirement plan is for not-for-profit workers and also some government employees, educators, nurses, doctors or librarians. A 403(b) is comparable to a 401(k) plan for employees in the private sector.

403(b) plans may be used to supplement your other retirement income, such as a pension or Social Security, which may not provide enough income for your retirement. Additional savings in a 403(b) plan can help you maintain your desired standard of living.

403(b) Retirement Plan Benefits

403(b) plans are tax-deferred; the contributions are made with “pre-tax” dollars. This means that the money you contribute to a 403(b) isn’t considered taxable income, reducing your annual income-tax burden. This money then grows tax-free until you make a withdrawal, when it will be taxed as income, unless your plan has a provision for a Roth IRA.

Given that many people will be in a lower tax bracket in retirement than they were when they were working, that tax deferral may be a real benefit.

403(b) plans also have more advantageous “catch-up” provisions than other plans. If an employee is over age 50 and has 15 or more years of service with an eligible employer, they may be able to make additional catch-up contributions of up to an additional $3,000 a year; and capped at a total of $15,000 across their lifetime.

How 403(b) Plans Work

You can voluntarily contribute up to 100% of your annual compensation on a pre-tax basis; but typically, no more than $20,500 for 2022. If you're over age 50, however, you may be able to contribute more with catch-up provisions.

Some employers may also offer a matching contribution to your account. The amount will differ with every employer, and not every employer offers this match. Employer contributions are usually a fixed-dollar or percentage amount, as a match to your own contributions. These employer contributions may have a vesting schedule, which determines when those dollars and associated interest belong to you outright and may be paid to you when you separate from service. (You always fully own your contributions and associated earnings.)

For example, if your employer offers a 6% match, they will match your contribution dollar for dollar up to 6% of your own contribution to your account. If you choose to contribute only 4% of your earnings to a 403(b) account, your employer’s contribution will match that 4%. Or, if you contribute 10% of your earnings, your employer’s match would be the maximum 6%.

If you’re a MissionSquare Retirement participant, contact your local MissionSquare Retirement representative to find out whether you have a match option in your plan.

403(b) Maximum Contribution

The 403(b) maximum contribution for 2022 is $20,500 for normal contributions. For 403(b) catch-up amounts, see contribution limits for the current calendar year.

403(b) Investment Options

Participants control how their account is invested, choosing from options included in their plan.

A typical plan includes a wide range of selections, from more conservative stable-value funds to more aggressive bond and stock funds. You may choose to build a diversified portfolio of various funds, select a simple yet diversified target-date or target-risk fund, or rely on specific investment advice through our Guided Pathways® Advisory Services.

If you have more than one 403(b) plan to choose from, be sure to evaluate each one carefully. Plan designs can vary significantly — especially related to fees and expenses. Over time, plans with higher fees will diminish retirement assets. Also keep in mind that, over time, fixed-rate investments may not offer the same level of potential growth as mutual funds and other variable-rate investments.

  • To review investment options for your plan, login to your account.
  • To learn more about investing for retirement, visit www.icmarc.org/invest.

Borrowing From a 403(b)

Many 403(b) plans contain a loan option governed by specific rules that allow you to borrow funds from your 403(b) plan and pay the money back over time.

The loan amount can be as much as 50% of your vested account balance, or $50,000, whichever is less. For example, If you had $200,000 vested in your 403(b) plan, you would still only be entitled to a loan of $50,000.

The loan must be repaid within a maximum of five years unless you are using the loan proceeds toward the purchase of a primary residence. The loan repayment does not count as part of your annual 403(b) contribution limit. So, you can still save up to the maximum contribution limit for the calendar year and make loan repayments as well.

The IRS requires that the loan be paid back in equal installments made, at a minimum, in quarterly payments. The terms of the loan will spell out the repayment schedule.

403(b) Withdrawal Rules

When you retire and are over 59½, you are eligible to withdraw money from your account as you see fit, but generally you aren’t required to take payments, also known as distributions, until after age 72.

When you begin taking distributions from your account, you can do so in a variety of ways: as a lump sum, in regular withdrawals or by annuitization, which converts your balance to a series of lifetime income payments from an insurance company. Payments are generally subject to ordinary income taxes on the amount received in any year. If you are separated from service, you may withdraw money before age 59½, but will have to pay an IRS-imposed 10% early-withdrawal penalty.

You may, under certain circumstances, make early withdrawals from your plan while you are still employed, depending on the options and terms in your particular plan. Some plans allow for in-service distributions, hardship withdrawals, or loans.

It’s important that you develop a thoughtful strategy for taking withdrawals from your account, both to manage your tax liability and to provide for your future financial security. Retirement Plans Specialists and CERTIFIED FINANCIAL PLANNERTM professionals can help you develop a plan to achieve both. For more information, view the Special Tax Notice Regarding Plan Payments.

403(b) Beneficiary Rules

You may designate a surviving beneficiary, or beneficiaries, to receive any remaining assets upon your death. Designating beneficiaries can help ensure your assets are distributed according to your wishes. Bear in mind that if you are married, most plans require that your spouse be your beneficiary for at least 50% of your account, unless your spouse signs a waiver of this right.

403(b) Rollover to IRA

If you change employers and have a 403(b), you may wish to roll funds over into an individual retirement account (IRA). All 403(b) plans are eligible for rollovers to IRAs, and you pay no taxes if it is done appropriately.

If you’re a MissionSquare Retirement participant, contact your local MissionSquare Retirement representative to find out more about 403(b) rollovers to IRAs.

Inherited 403(b) Rollovers

The rules for inherited 403(b) rollovers depend on the beneficiary’s relationship to the original account holder. If the plan allows it, a spouse of the original account holder can roll over the funds into an IRA that they own. The rules for non-spouse beneficiaries are different and may be complex. It is important that you get professional guidance from a tax advisor.

Contact your MissionSquare representative if you’d like to understand your options for an inherited 403(b) plan.

403(b) Plans and 457 Plans

One unique benefit of a 403(b) plan is that it has a separate IRS contribution limit. You can contribute the maximum allowable to a 403(b) plan and contribute the maximum to a 457 deferred-compensation plan at the same time. The benefit here is that, if able, you can contribute more than the annual 402(g) limit (currently $20,500 in 2022 for those under 50), by contributing to both plans, helping you build a secure retirement

403(b) and 401(k) Plans

403(b) and 401(k) plans are very similar. Both are funded with pre-tax dollars, and they have the same annual contribution limits.

The key difference is who the plans are for: 401(k) plans are for employees at for-profit companies, while 403(b) plans are for government workers and employees at not-for-profits.

Therefore, you are not able to open a 401(k) and a 403(b) at the same time, (the way you may with a 457 plan and a 403(b) plan). However, you would be able to have an account with both a 403(b) and a 401(k) plan if you were to switch jobs; but only the account with your current employer would be active.

Are You a Plan Sponsor? Start a 403(b) Plan

For Plan Sponsor or Consultant inquiries, email us or call 800-326-7272.

Are You a Participant? Enroll in a 403(b) Plan

If you’re a MissionSquare Retirement participant, contact your local MissionSquare Retirement representative, email us or call 800-326-7272.

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