A 403(b) and an IRA are two different retirement accounts with different rules

No, a 403(b) is not an IRA. They are separate types of retirement accounts with different owners, different contribution limits, and different withdrawal rules. A 403(b) is a workplace retirement plan that your employer sets up and often contributes to. An IRA (Individual Retirement Account) is a personal retirement account you open and fund yourself, usually through a bank or brokerage firm.

The confusion happens because both accounts let you save money for retirement with tax advantages. But the way they work, who can have them, and what you can do with the money inside are quite different. Understanding which one you have — or whether you have both — matters for knowing how much you can save each year and when you can take money out.

Key Takeaways

  • A 403(b) is a workplace plan your employer offers; an IRA is a personal account you open on your own.
  • You can have both a 403(b) and an IRA at the same time, and many people do.
  • The annual contribution limit for a 403(b) is much higher than for an IRA, but your employer must offer the plan first.
  • Money in a 403(b) stays with your employer's plan until you leave the job or reach retirement age; an IRA is always yours to manage.
  • Withdrawal rules differ: 403(b)s have stricter early withdrawal penalties, while IRAs offer more flexibility in certain situations.

Who owns and controls each account

Your employer owns and administers the 403(b) plan itself. Your employer chooses which investment options you can pick from, which insurance company or financial firm runs the plan, and what rules explore to loans or hardship withdrawals. You own the money inside the account, but the account itself is part of your employer's benefit package.

You own an IRA completely. You choose which bank or brokerage holds it, which investments go inside it, and when to move it somewhere else. No employer is involved unless you work for a financial institution. This means you have more control over an IRA, but you also have to manage it yourself.

How much you can contribute each year

The 403(b) contribution limit is much higher. For 2024, you can put up to $23,500 of your own money into a 403(b) each year (the limit changes annually). If you are 50 or older, you can add an extra $7,500 as a catch-up contribution. Your employer may also contribute money to your 403(b), which does not count against your personal limit.

An IRA has a lower limit. For 2024, you can contribute up to $7,000 per year to an IRA, or $8,000 if you are 50 or older. This is true whether you have a traditional IRA or a Roth IRA. If you have both a 403(b) and an IRA, the limits are separate — you can max out both in the same year, but you cannot move money between them to get around the limits.

Tax treatment and how withdrawals work

Both 403(b)s and traditional IRAs offer tax breaks on the money you put in. With a traditional 403(b), you contribute pre-tax dollars, which lowers your taxable income for that year. With a traditional IRA, you may be able to deduct your contributions on your tax return, depending on your income and whether you have access to a workplace plan. When you withdraw money in retirement, you pay income tax on it.

Roth versions of both accounts work differently. You contribute after-tax dollars (money you have already paid income tax on), but the money grows tax-free and you do not pay tax on withdrawals in retirement. Not all employers offer a Roth 403(b), but you can always open a Roth IRA on your own if your income is below the limit.

Both accounts penalize you for taking money out before age 59½, usually with a 10 percent penalty plus income tax on the withdrawal. However, IRAs have more exceptions to this rule — you can withdraw money penalty-free for a first home purchase, education expenses, or medical bills in certain situations. 403(b)s are stricter and usually only allow loans or hardship withdrawals if your employer's plan includes those options.

What happens to your 403(b) when you leave your job

When you leave your employer, your 403(b) stays in that plan unless you move it. You have several choices: leave it where it is (if your balance is high enough), roll it into an IRA, roll it into a new employer's 403(b) if you get a new job with one, or cash it out. If you cash it out before age 59½, you will owe the 10 percent early withdrawal penalty plus income tax.

A rollover into an IRA is common because it gives you more investment choices and lower fees. When you roll a traditional 403(b) into a traditional IRA, there is no tax or penalty — the money moves directly from one account to the other. This is different from cashing out, which triggers taxes and penalties.

Can you have both at the same time

Yes. Many people have a 403(b) through their job and also have an IRA. You can contribute to both in the same year, as long as you stay within each account's annual limit. Your 403(b) contributions do not reduce how much you can put into an IRA, and vice versa.

Having both can make sense if you want to save more than the IRA limit allows, or if you want the extra control and investment choices an IRA offers for part of your retirement money. Some people use a 403(b) for their main workplace savings and an IRA for additional retirement funds or to hold money rolled over from a previous job's plan.

Required withdrawals in retirement

Both 403(b)s and traditional IRAs require you to start taking withdrawals at age 73 (as of 2023, under the find 2.0 Act). These are called required minimum distributions, or RMDs. The amount you must withdraw each year is based on your age and account balance. If you do not take the required amount, you face a penalty.

Roth IRAs do not require withdrawals during your lifetime, which is one reason some people prefer them. Roth 403(b)s do require RMDs, just like traditional 403(b)s. If you have both a Roth IRA and a Roth 403(b), the RMD rules explore only to the 403(b).

Frequently Asked Questions

Can I roll my 403(b) into an IRA?

Yes. You can roll a 403(b) into a traditional IRA or, if you have a Roth 403(b), into a Roth IRA. The money moves directly from your 403(b) plan to the IRA with no tax or penalty. This is called a direct rollover. Contact your 403(b) plan administrator to start the process.

If I have a 403(b) at work, can I still open an IRA?

Yes, you can open an IRA even if you have a 403(b). However, your ability to deduct traditional IRA contributions on your tax return may be limited if your income is above a certain threshold and you have access to a workplace plan. A Roth IRA has different income limits. Check with a tax professional about your specific situation.

Which account should I contribute to first?

If your employer matches 403(b) contributions, contribute enough to get the full match first — that is information programs. After that, many people max out an IRA because of lower fees and more investment choices, then return to the 403(b) if they want to save more. Your choice depends on your employer's match, the fees in each plan, and how much you want to save.

What happens to my 403(b) if I die?

Your 403(b) passes to your beneficiary, usually a spouse or child you named when you opened the account. They can roll it into an inherited IRA or take withdrawals according to the plan rules. An IRA works the same way — money goes to whoever you named as beneficiary. Make sure your beneficiary information is current in both accounts.

Do I have to take money out of my 403(b) at the same time as my IRA?

No. Each account has its own required minimum distribution. You calculate the RMD for your 403(b) and the RMD for your IRA separately. However, you can aggregate IRA RMDs (if you have multiple IRAs) and take the total from one account, but 403(b) RMDs must come from the 403(b) itself.