What other retirement accounts work alongside or instead of a 403(b)

If you work in education, healthcare, or nonprofit work, a 403(b) is often your main retirement tool — but it is not your only one. You can also contribute to a traditional IRA or Roth IRA, a SEP IRA if you have self-employment income, or a Solo 401(k) if you run your own business on the side. Some employers offer a 457(b) plan, which is a separate deferred-compensation account with its own contribution limits. The rules for each differ in who can use them, how much you can set aside each year, when you can withdraw money, and how taxes work.

The choice between these accounts depends on your income level, whether you have self-employment earnings, and whether your employer offers them. You can hold multiple accounts at the same time, but contribution limits sometimes interact — for example, if you max out a 403(b), you can still contribute to an IRA, but the IRA contribution may not be tax-deductible depending on your income and whether you have access to an employer plan.

Key Takeaways

  • Traditional and Roth IRAs are available to anyone with earned income, have lower annual contribution limits than 403(b) plans, and can be opened at banks or investment firms without employer involvement.
  • A SEP IRA lets you contribute up to 25 percent of your net self-employment income if you have side business earnings, and the contribution limit is much higher than a regular IRA.
  • A Solo 401(k) is designed for self-employed people with no employees and allows both employee and employer contributions, with a total limit higher than a SEP IRA.
  • A 457(b) plan is offered by some government and nonprofit employers and has the same annual contribution limit as a 403(b), but the money is not subject to the 10 percent early withdrawal penalty before age 59½.
  • Contribution limits for IRAs do not reduce your 403(b) limit, but tax deductions for traditional IRA contributions may be reduced if your income is high and you have access to an employer plan.

Traditional IRA versus Roth IRA for 403(b) participants

Both types of IRA are open to you regardless of your employer or job type, as long as you have earned income. The main difference is when you pay taxes: a traditional IRA contribution may be tax-deductible in the year you make it, and you pay taxes on the money when you withdraw it in retirement. A Roth IRA contribution is made with after-tax money, but withdrawals in retirement are tax-free.

For 2024, you can contribute up to $7,000 per year to either type of IRA (or $8,000 if you are 50 or older). These limits are separate from your 403(b) limit — you can contribute the maximum to both in the same year. However, if your income is above a certain threshold and you have access to a 403(b) or other employer plan, your traditional IRA contribution may not be fully tax-deductible. The income thresholds vary by filing status and change each year. A Roth IRA has income limits that prevent high earners from contributing directly, though a "backdoor Roth" strategy exists for those above the limit.

You can withdraw money from a traditional IRA starting at age 59½ without penalty, though you must begin taking required minimum distributions at age 73. A Roth IRA has no required minimum distributions during your lifetime, and you can withdraw contributions (not earnings) at any time without penalty. Both accounts charge a 10 percent early withdrawal penalty if you take money before 59½, with some exceptions for hardship.

SEP IRA for self-employment income

If you earn money outside your main job — through tutoring, consulting, freelance writing, or running a small business — you can open a SEP IRA (Simplified Employee Pension IRA) to save that income. The contribution limit is much higher than a regular IRA: up to 25 percent of your net self-employment income, with a maximum of $69,000 for 2024. This makes a SEP IRA attractive if you have significant side earnings.

A SEP IRA is straightforward to set up and requires minimal paperwork compared to other business retirement plans. You open it at a bank, brokerage, or investment firm, and you can contribute to it even after the tax year ends (until your tax filing important date, including extensions). The contributions are tax-deductible, and the money grows tax-deferred until withdrawal.

The downside is that a SEP IRA is less flexible than a Solo 401(k). You cannot borrow from a SEP IRA, and if you ever hire employees, you must contribute the same percentage of their salary that you contribute for yourself. Withdrawals follow the same rules as a traditional IRA: you can withdraw without penalty starting at age 59½, and you must take required minimum distributions at age 73.

Solo 401(k) for self-employed people with no employees

A Solo 401(k) (also called a one-participant 401(k)) is designed for self-employed people who have no employees other than a spouse. It allows you to contribute as both the employee and the employer, which means you can set aside more money than a SEP IRA in most cases. For 2024, you can contribute up to $69,000 total (or $76,500 if you are 50 or older), split between employee deferrals and employer contributions.

Unlike a SEP IRA, a Solo 401(k) lets you borrow against your balance — up to 50 percent of your vested balance or $69,000, whichever is less. This can be useful if you need access to cash. However, a Solo 401(k) requires more paperwork than a SEP IRA: you must file Form 5500 with the IRS if the plan balance exceeds $16,000 at year-end, and you need a written plan document.

If your self-employment income grows and you hire an employee, you can no longer use a Solo 401(k) — you would need to switch to a different plan type. Withdrawals follow the same early-withdrawal rules as a 403(b): you can withdraw without penalty starting at age 59½, and you must take required minimum distributions at age 73. A Solo 401(k) also allows loans, which a traditional IRA does not.

457(b) plans offered by some employers

Some government agencies and nonprofit organizations offer a 457(b) plan, a deferred-compensation account separate from a 403(b). If your employer offers both, you can contribute to each in the same year, and the contribution limits do not reduce each other. For 2024, the 457(b) limit is $23,500 (or $29,000 if you are 50 or older), the same as the 403(b) limit.

The key advantage of a 457(b) is the withdrawal rule: you can withdraw money without the 10 percent early-withdrawal penalty once you separate from service, regardless of your age. This is different from a 403(b), where you generally cannot touch the money penalty-free before 59½. If you plan to retire before 59½, a 457(b) can give you access to retirement savings without penalty.

A 457(b) is only available if your employer offers it — you cannot open one on your own. The money is held in a trust by your employer, and you direct how it is invested among the options the plan provides. Like a 403(b), a 457(b) is funded with pre-tax money, and withdrawals in retirement are taxed as ordinary income. You must begin taking required minimum distributions at age 73.

How contribution limits interact across multiple accounts

The IRS sets separate limits for different account types, and understanding how they stack is important if you are saving in multiple places. Your 403(b) limit and 457(b) limit do not affect each other — if your employer offers both, you can contribute the maximum to each. Your IRA contributions (traditional or Roth) also do not reduce your 403(b) limit.

However, the tax deduction for a traditional IRA contribution is reduced or eliminated if your income is above a threshold and you have access to a 403(b) or other employer plan. For 2024, if you are single and covered by a workplace plan, the deduction phases out between $77,000 and $87,000 of income. If you are married filing jointly, it phases out between $123,000 and $143,000. These thresholds change each year.

Self-employment account limits (SEP IRA or Solo 401(k)) are based on your net self-employment income, not your W-2 salary. So if you earn $50,000 from your main job and $20,000 from freelance work, you can contribute the maximum to your 403(b) based on the $50,000, and then open a SEP IRA or Solo 401(k) for the $20,000 of self-employment income. The two accounts do not interfere with each other.

Tax treatment and withdrawal timing across account types

The tax rules differ depending on the account. A traditional 403(b), traditional IRA, SEP IRA, and Solo 401(k) are all funded with pre-tax money (or money that is tax-deductible), and you pay income tax on withdrawals. A Roth IRA is funded with after-tax money, and may have access to withdrawals are tax-free. A 457(b) is also pre-tax, but the withdrawal rules are more lenient.

Early withdrawal penalties explore differently across accounts. A 403(b), traditional IRA, SEP IRA, and Solo 401(k) all charge a 10 percent penalty if you withdraw before age 59½, with some exceptions (like hardship or disability). A 457(b) has no early-withdrawal penalty once you separate from service, even if you are younger than 59½. A Roth IRA lets you withdraw contributions (not earnings) at any time without penalty.

Required minimum distributions (RMDs) begin at age 73 for 403(b), traditional IRA, SEP IRA, Solo 401(k), and 457(b) accounts. A Roth IRA has no RMD during your lifetime. If you have multiple accounts, you must calculate the RMD for each type separately, though you can aggregate IRAs and withdraw the total from one account if you wish.

Frequently Asked Questions

Can I contribute to both a 403(b) and a 457(b) in the same year?

Yes, if your employer offers both plans. The contribution limits are separate, so you can contribute the maximum to each. For 2024, that means up to $23,500 to the 403(b) and $23,500 to the 457(b), for a total of $47,000 (or $58,000 if you are 50 or older and use catch-up contributions).

If I max out my 403(b), can I still contribute to an IRA?

Yes. The 403(b) limit and IRA limit are separate. You can contribute up to $7,000 to an IRA in 2024 even if you have already contributed the maximum to your 403(b). However, if your income is high, the tax deduction for a traditional IRA may be reduced or eliminated because you have access to a 403(b).

What happens to my SEP IRA if I get hired as an employee?

You can keep the SEP IRA and continue to contribute to it based on self-employment income. If you have no more self-employment income, you straightforward stop making contributions. The money already in the account stays there and continues to grow tax-deferred until you withdraw it.

Can I withdraw from a 457(b) before age 59½ without penalty?

Yes, but only after you separate from service (leave your job). Once you separate, you can withdraw money from a 457(b) at any age without the 10 percent early-withdrawal penalty. This is different from a 403(b), where the penalty applies until age 59½ regardless of when you leave.

Do I have to file paperwork with the IRS for a Solo 401(k)?

You must file Form 5500 with the IRS if your Solo 401(k) balance exceeds $16,000 at the end of the year. You also need a written plan document, which you can get from the financial institution where you open the account. A SEP IRA requires less paperwork — you just file Form 5498 when you contribute.