What is a 403(b) plan?

A 403(b) plan is a tax-advantaged retirement savings option specifically designed for employees of public schools and certain tax-exempt organizations, such as non-profit entities. This type of plan allows eligible employees to contribute a portion of their salary on a pre-tax basis, which can help lower their taxable income in the year contributions are made. The funds can grow tax-deferred until withdrawal, typically during retirement, when workers may be in a lower tax bracket.

The distinct feature of a 403(b) plan is its eligibility criteria, as it is not available to everyone, which differentiates it from more general retirement accounts. It is often compared to 401(k) plans, which serve employees of for-profit organizations, but 403(b) plans cater specifically to the education and non-profit sectors, providing unique benefits aligned with the circumstances of these work environments.