Is a 403(b) a Roth IRA? Key Differences to Know

A 403(b) plan is not a Roth IRA. A 403(b) is an employer-sponsored plan with specific eligibility, while a Roth IRA is an individual account that anyone with earned income can open. They possess distinct rules regarding contributions, tax treatment, and employer involvement. Understanding these differences is important for effective retirement planning.

Understanding the 403(b) Plan

A 403(b) plan, sometimes called a tax-sheltered annuity (TSA) plan, is a retirement plan offered by public schools, certain 501(c)(3) tax-exempt organizations, and religious institutions. Eligibility is restricted to employees of these specific entities. Contributions are made directly from an employee’s paycheck, and many employers who offer a 403(b) also provide matching contributions based on how much the employee saves.

A feature of 403(b) plans is the potential choice between two types of contributions. Employees may be able to make traditional, pre-tax contributions, which lower their current taxable income. Alternatively, some employers offer a Roth 403(b) option. With a Roth 403(b), contributions are made with post-tax dollars, so qualified withdrawals in retirement are tax-free. This “Roth” feature within a 403(b) is a common source of confusion but is distinct from a Roth IRA.

These employer-sponsored plans allow for significantly higher savings rates than individual accounts. For 2025, an employee can contribute up to $23,500 to their 403(b).

Additionally, plans may include “catch-up” contributions for long-term savers. Those aged 50 and over can contribute an additional $7,500. Beginning in 2025, a new provision allows plans to offer a higher catch-up for participants aged 60 through 63, increasing their potential contribution to $11,250. Some plans may also offer a special catch-up for employees with at least 15 years of service, allowing an additional contribution up to a $3,000 annual and $15,000 lifetime limit.

Understanding the Roth IRA

A Roth IRA is an Individual Retirement Arrangement that a person opens and manages independently of an employer, which can be established at most financial institutions like banks or brokerages. Its defining characteristic is its tax structure: contributions are made with money that has already been taxed. This means you do not receive a tax deduction in the year you contribute.

The benefit of this structure is that qualified distributions in retirement are completely tax-free. To be qualified, withdrawals of earnings must be made after the account holder reaches age 59½ and after the account has been open for at least five years. All funds come from the individual account holder, as there are no employer contributions.

Contribution amounts for Roth IRAs are much lower than for 403(b) plans. For 2025, an individual can contribute up to $7,000 per year, or $8,000 if age 50 or older. The ability to contribute is also subject to income limitations; for 2025, it phases out for single filers with a Modified Adjusted Gross Income (MAGI) between $150,000 and $165,000.

Key Distinctions Between a 403(b) and a Roth IRA

While both can be used for retirement savings, their structures and rules differ significantly:

• Account Sponsorship: A 403(b) is an employer-sponsored plan available only to employees of eligible organizations. A Roth IRA is an individual account that anyone with qualifying earned income can open independently.
• Contribution Rules: A 403(b) allows for much higher annual contributions ($23,500 in 2025, plus catch-ups). A Roth IRA has lower limits ($7,000 in 2025, or $8,000 for those 50 and over) and is restricted by income, with high earners unable to contribute directly.
• Employer Involvement: Many employers offer matching contributions for 403(b) plans. Roth IRAs are entirely self-funded and do not have an employer matching feature.
• Investment Options: A 403(b) plan offers a limited menu of investment choices selected by the employer. A Roth IRA provides a much broader universe of options, including individual stocks, bonds, and ETFs.

Using Both a 403(b) and a Roth IRA

An individual eligible for a 403(b) can also contribute to a Roth IRA, provided they meet the income requirements. The contribution limits for each account are separate, meaning contributing to a 403(b) does not reduce the amount you can contribute to a Roth IRA in the same year, and vice versa.

Utilizing both accounts allows a saver to have both pre-tax savings (in a traditional 403(b)) and post-tax savings (in a Roth IRA or Roth 403(b)), providing flexibility when managing taxable income in retirement.

It is also possible to move funds between these account types, most commonly after separating from an employer. An individual can perform a rollover, moving assets from their 403(b) into an IRA. If moving funds from a traditional 403(b) to a Roth IRA, this is a Roth conversion and requires paying income tax on the amount rolled over.