No, a 403(b) is not an IRA, though both are retirement accounts that let you save money before taxes

A 403(b) and an IRA are separate types of retirement accounts with different rules about who can open one, how much you can contribute each year, when you can withdraw money, and what happens if you leave your job. The most important difference: your employer sets up and runs a 403(b) for you, while you open an IRA on your own at a bank or brokerage firm. You cannot have a 403(b) unless your employer offers one. You can open an IRA whether or not your employer offers anything.

Both accounts reduce your taxable income in the year you contribute, which is why they are called tax-advantaged retirement accounts. But the IRS treats them differently regarding contribution limits, withdrawal rules, and what you can do with the money if you change jobs.

Key Takeaways

  • A 403(b) is offered by your employer; an IRA is opened by you independently at a financial institution.
  • The annual contribution limit for a 403(b) is higher than for an IRA, though both limits change year to year.
  • If you leave your job, you can move a 403(b) to an IRA through a rollover, but the reverse is not possible.
  • A 403(b) is only available to employees of schools, hospitals, nonprofits, and certain religious organizations; an IRA is available to anyone with earned income.

Who can open each type of account

A 403(b) is only available if your employer offers one. These accounts are designed for employees of public schools, colleges, hospitals, nonprofits, and certain religious organizations. If you work for a for-profit company, your employer likely offers a 401(k) instead, not a 403(b). You cannot open a 403(b) on your own — your employer must set it up for you.

An IRA is available to anyone who has earned income from a job or self-employment. You can open an IRA at a bank, credit union, brokerage firm, or insurance company. You do not need your employer's permission. If your employer does not offer a 403(b), 401(k), or any retirement plan, an IRA is often your main option for tax-advantaged retirement saving.

How much you can contribute each year

The contribution limits are different. For 2024, the 403(b) limit is $23,500 per year if you are under age 50. For an IRA, the limit is $7,000 per year at any age under 50. If you are 50 or older, both accounts allow a catch-up contribution: an extra $7,500 for a 403(b) and an extra $1,000 for an IRA. These limits change annually, and the IRS publishes new ones each October or November for the following year.

The higher 403(b) limit exists because it is an employer-sponsored plan — your employer may also contribute to your account, and the IRS counts both your contributions and theirs toward the annual limit. With an IRA, only your own money counts, so the limit is lower.

What happens when you leave your job

If you leave a job where you had a 403(b), you have several options. You can leave the money in the 403(b) if your balance is above a certain amount (usually $5,000, though this varies by plan). You can roll the 403(b) into an IRA at a bank or brokerage — this is called a rollover — and continue saving tax-free. You can also roll it into a new employer's 403(b) or 401(k) if your new job offers one. Or you can cash it out, though you will owe income tax on the full amount and a 10 percent penalty if you are under 59½.

You cannot roll an IRA into a 403(b). Once money is in an IRA, it stays in an IRA (or moves to another IRA). This is a one-way street: 403(b) to IRA is allowed, but IRA to 403(b) is not.

Withdrawal rules and penalties

Both accounts penalize you for withdrawing money before age 59½. The standard penalty is 10 percent of the amount you withdraw, plus you owe income tax on it. However, 403(b) plans sometimes allow hardship withdrawals for specific situations like medical bills, home purchase, or education costs, without the 10 percent penalty. IRAs also allow penalty-free withdrawals in certain hardship cases, but the rules are narrower and more specific.

Both accounts require you to start taking withdrawals at age 73 (as of 2023; this age has been rising gradually). The amount you must withdraw each year is calculated based on your age and account balance. If you do not take the required amount, you owe a penalty to the IRS.

Investment options and fees

A 403(b) typically offers a limited menu of investment choices — usually mutual funds or annuities selected by your employer. You choose from what is available in your plan. Your employer may also negotiate lower fees because they are buying in bulk for all employees.

An IRA gives you access to nearly any investment available in the market: individual stocks, bonds, mutual funds, exchange-traded funds, and more. You have much more control over what you buy. However, you also pay whatever fees the financial institution charges, and there is no employer negotiating on your behalf. Some IRAs have low or no fees, while others charge annual maintenance fees or trading fees.

Can you have both a 403(b) and an IRA

Yes, you can have both at the same time. Many people do. If your employer offers a 403(b), you can still open and contribute to an IRA. However, there are limits on how much you can deduct from your taxes if you have both accounts and your income is above certain thresholds. This is called the IRA deduction phase-out. If your income is high enough, you may not be able to deduct your IRA contribution from your taxes even though you made it.

The phase-out limits depend on your filing status and whether you are covered by a workplace retirement plan like a 403(b). If you are covered by a 403(b) and your income exceeds the phase-out range, your IRA contribution may not reduce your taxable income. You should check the current year's limits on the IRS website or with a tax preparer before opening an IRA if you already have a 403(b).

Frequently Asked Questions

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

No. You can move money from a 403(b) to an IRA, but not the other way around. If you want to move an IRA into a workplace plan, some 401(k) plans accept IRA rollovers, but 403(b) plans typically do not. Check with your plan administrator before assuming it is possible.

What if I have a 403(b) from a previous job and a new job with a different 403(b)?

You can roll the old 403(b) into the new one if the new plan allows it. Many do, but not all. You can also roll it into an IRA instead. Contact both plan administrators to find out which option is available to you.

Do I have to contribute to my employer's 403(b) if it is offered?

No. Contributing to a 403(b) is voluntary. Your employer cannot force you to participate. However, if you do not contribute, you miss out on any employer match or contribution your employer may offer, which is essentially information programs.

If I have a 403(b), should I also open an IRA?

It depends on how much you can afford to save and your income level. If you have money left over after maxing out your 403(b) contribution, an IRA is a good place to put it. But check the IRA deduction phase-out limits first — if your income is too high, your IRA contribution may not reduce your taxes.