Introduction
Both 403(b) plans and Roth IRAs allow you to invest for retirement. However, 403(b) plans are similar to 401(k) plans in that they are only available through an employer, funded by pre-tax contributions, and have higher contribution limits than Roth IRA plans. (403(b) plans can only be offered by certain types of employers, such as schools and non-profit organizations).
What is the difference between 403(b) plans and Roth IRA?
This sections outline the key differences between 403(b) plans and Roth IRAs:
Contribution Eligibility
403(b) plans require availability through certain types of employers only, and you can only contribute if you have a job that offers this plan. If your employer is a public school or a 501(c)(3) organization, such as a church, you may be offered a 403(b) plan. In contrast, Roth IRA plans are available to anyone with qualifying taxable income. However, your income must be below certain limits set by the IRS to qualify.
Contribution Limits
As employer-sponsored plans, 403(b) plans allow for significant contributions. You can contribute up to $20,500 of your salary to a 403(b) plan in 2022 ($22,500 in 2023). If you are age 50 or older, you can add a catch-up contribution of $6,500 in 2022 ($7,500 in 2023). It’s worth noting that some 403(b) plans allow for additional catch-up contributions. In some cases, as long as you have worked for the same employer for at least 15 years, you may be able to contribute an additional $3,000 per year to your 403(b) plan, up to a lifetime limit of $15,000.
Employer Matching of Contributions
In addition to your contributions, your employer may match your savings in a 403(b) plan. For example, the employer may match your contributions (up to certain limits), significantly boosting your annual savings. However, not all employers choose to offer this, so whether you receive this benefit depends on your workplace. Since Roth IRAs are not employer-sponsored, there is no matching contribution.
Pre-Tax Contributions (Pre-Tax Deduction?)
403(b) plans typically offer the option to make pre-tax contributions from your wages. This allows you to reduce your taxable income for the year, making it easier to afford contributions. However, you generally have to pay taxes on that money when you withdraw it from your retirement account. Some 403(b) plans also allow for after-tax contributions, known as designated Roth contributions or “Roth 403(b)”. If you choose this route, you won’t receive a tax break today, but it may allow you to receive tax-free income from those savings during retirement. Additionally, your employer plan may allow for extra voluntary after-tax contributions, which could make it a huge backdoor Roth strategy.
Source: https://www.thebalancemoney.com/403b-vs-roth-ira-whats-the-difference-5197086
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