403(b)

In the United States, a 403(b) plan is a U.S. tax-advantaged retirement savings plan available for public educationorganizations, some non-profit employers (only Internal Revenue Code501(c)(3) organizations), cooperative hospital service organizations, and self-employedministers in the United States. It has tax treatment similar to a 401(k) plan, especially after the Economic Growth and Tax Relief Reconciliation Act of 2001. Both plans also require that distributions start at age 73 (effective on January 1, 2023 per SECURE Act 2.0), known as Required Minimum Distributions (RMDs). Roth 403(b) accounts are exempt from RMDs beginning in 2024, also per SECURE Act 2.0. Distributions are typically taxed as ordinary income.

Employee salary deferrals into a 403(b) plan are made before income tax is paid and allowed to grow tax-deferred until the money is taxed as income when withdrawn from the plan.

403(b) plans are also referred to as a tax-sheltered annuity (TSA) although since 1974 they no longer are restricted to an annuity form and participants can also invest in mutual funds. A 403(b) account that is able to invest directly in mutual funds is referred to as a 403(b)(7) account or a tax-sheltered custodial account (TSCA).