A Roth 403(b) lets you contribute after-tax money to a retirement account, then withdraw the earnings tax-free after age 59½
A Roth 403(b) is a retirement savings account offered by certain employers — typically schools, hospitals, nonprofits, and religious organizations. You put money into it after taxes have already been taken out of your paycheck. When you retire and start withdrawing money, both your contributions and the earnings on those contributions come out tax-free, as long as you follow the rules.
The key difference from a traditional 403(b) is the tax timing. With a traditional 403(b), you get a tax break now (your contribution lowers your taxable income this year). With a Roth 403(b), you pay taxes now and get the break later (your withdrawals in retirement are tax-free). Which one makes sense depends on whether you think your tax rate will be higher or lower when you retire.
Key Takeaways
- You contribute to a Roth 403(b) with after-tax money, meaning your paycheck is reduced by the full contribution amount with no when ready tax deduction.
- Your money grows tax-free inside the account, and you can withdraw both contributions and earnings without paying taxes in retirement.
- You must be at least 59½ years old and have held the account for at least five years to withdraw earnings tax-free; contributions can come out anytime without penalty.
- Your employer must offer a Roth 403(b) option — not all employers do, and you cannot open one on your own like you can with a Roth IRA.
- For 2024, you can contribute up to $23,500 per year (or $31,000 if you are age 50 or older), the same limit as a traditional 403(b).
How contributions and withdrawals work
When you enroll in a Roth 403(b), you choose a percentage of your paycheck to contribute. That money comes out after your employer has already withheld federal income tax, Social Security tax, and Medicare tax. Your take-home pay is reduced by the full amount — there is no tax deduction on your current return.
The money sits in an investment account (usually mutual funds or annuities, depending on what your employer offers) and grows over time. You do not pay taxes on any of that growth. When you turn 59½ and have owned the account for at least five years, you can withdraw any amount without owing income tax on it. That five-year rule starts from the first day you contributed to any Roth 403(b) through your employer, not from the day you turn 59½.
If you need to withdraw money before age 59½, you can take out your contributions penalty-free, but earnings come out with a 10% early withdrawal penalty plus income tax. The five-year holding period still applies to earnings, even if you are over 59½.
When a Roth 403(b) makes sense
A Roth 403(b) is most useful if you expect to be in a higher tax bracket in retirement than you are now. If you are young and earning a modest salary, your tax rate today is probably lower than it will be when you are retired and have accumulated significant savings. Paying taxes now at a lower rate, then withdrawing tax-free later, can save you money overall.
A Roth 403(b) is also valuable if you want flexibility in retirement. Since you can withdraw your contributions anytime without penalty or tax, you have access to that money if you need it before 59½. With a traditional 403(b), early withdrawals of earnings trigger both taxes and a 10% penalty.
You might also choose a Roth 403(b) if you are uncertain about future tax law. Tax rates could rise, or your income in retirement could be higher than expected. Locking in today's tax rate removes that uncertainty.
Comparing Roth 403(b) to traditional 403(b)
| Feature | Roth 403(b) | Traditional 403(b) |
|---|---|---|
| Contribution type | After-tax | Pre-tax |
| Tax deduction now | No | Yes |
| Withdrawals in retirement | Tax-free | Taxed as income |
| Early withdrawal of contributions | Penalty-free | 10% penalty plus tax |
| Required minimum distributions (RMDs) | Yes, starting at age 73 | Yes, starting at age 73 |
| Income limits | None | None |
Both accounts have the same annual contribution limit and the same age for penalty-free withdrawals. The main trade-off is whether you want a tax break today (traditional) or in retirement (Roth). Some employers let you contribute to both in the same year, as long as your combined contributions do not exceed the annual limit.
Income limits and who can contribute
Unlike a Roth IRA, there are no income limits for a Roth 403(b). You can earn any amount and still contribute. However, your employer must offer a Roth 403(b) option — you cannot open one independently. If your employer does not offer it, you can ask your benefits or human resources department whether they would consider adding it.
You can only contribute if you are employed by an organization that sponsors a 403(b) plan. These are typically public schools, colleges and universities, hospitals, nonprofits with 501(c)(3) status, and certain religious organizations. If you work for a for-profit company, you would have access to a 401(k) instead, which may or may not offer a Roth option depending on your employer.
Required minimum distributions and other rules
Starting at age 73, you must begin taking required minimum distributions (RMDs) from your Roth 403(b). The amount is calculated based on your age and account balance. This is different from a Roth IRA, which has no RMD requirement during your lifetime. If you are still working at age 73 and your employer allows it, you may be able to delay RMDs until you actually retire, but this varies by plan.
If you leave your job, you can roll your Roth 403(b) into a Roth IRA, which gives you more investment options and eliminates the RMD requirement. You can also roll it into another employer's Roth 403(b) if you change jobs. A direct rollover (where the money moves from one account to another without passing through your hands) avoids any tax complications.
Frequently Asked Questions
Can I have both a Roth 403(b) and a traditional 403(b) at the same time?
Yes, many employers allow you to split your contributions between both types in the same year. Your combined contributions to both accounts cannot exceed the annual limit ($23,500 for 2024, or $31,000 if you are 50 or older). Check with your employer's benefits department to see if this option is available.
What happens to my Roth 403(b) if I leave my job?
You keep the account and it continues to grow. You can roll it into a Roth IRA or into a Roth 403(b) at a new employer. You do not have to do anything when ready, but rolling it to an IRA often gives you more investment choices and lower fees. A direct rollover keeps everything tax-free.
Do I pay taxes on the growth inside my Roth 403(b)?
No. The money grows tax-free inside the account. You only pay taxes on the growth if you withdraw it before age 59½ and before the five-year holding period is complete. After that, all withdrawals — contributions and earnings — are tax-free.
Can I withdraw my contributions before retirement without a penalty?
Yes. You can withdraw your contributions (the money you put in) anytime without a 10% penalty or income tax. However, if you withdraw any earnings before age 59½, those earnings are subject to both income tax and a 10% penalty, unless an exception applies.
What if my employer does not offer a Roth 403(b)?
You can open a Roth IRA on your own through a bank or brokerage, though the contribution limit is lower ($7,000 for 2024, or $8,000 if you are 50 or older). You can also ask your employer's benefits department if they would consider adding a Roth 403(b) option to the plan.