The 15-Year Catch-Up Rule

Employees with 15+ years of service may contribute an extra $3,000 per year Lifetime maximum additional contribution under this rule is $15,000 Applies only if average prior contributions were under $5,000 per year This catch-up is applied before the age-50 catch-up in IRS calculations

Investment Options — Annuities vs Mutual Funds

403(b)(1) plans use annuity contracts from insurance companies 403(b)(7) custodial accounts hold mutual funds, similar to a 401(k) Annuity contracts often carry higher fees including surrender charges and mortality costs Custodial account options typically offer lower-cost index fund access

Many 403(b) plans now offer a Roth contribution option Roth contributions are made after tax but grow and are withdrawn tax-free Useful for employees who expect higher tax rates in retirement Income limits that restrict Roth IRA eligibility do not apply to Roth 403(b)

Employer Matching and Vesting

Some employers match 403(b) contributions, but many do not Public school districts rarely offer matching; nonprofits more commonly do Employer contributions may have a vesting schedule of up to 6 years Always contribute enough to capture the full employer match if one is offered

Common Pitfalls to Watch For

High-fee annuity products can significantly erode long-term returns Surrender charges may lock you into an underperforming product for years Multiple vendors at one employer can create confusion and account fragmentation Review investment fees carefully and request the 403(b)(7) option if available

403(b) Plans — Retirement Savings for Educators and Nonprofit Employees

Curated by: Rubric Advisors

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What Is a 403(b) Plan?

A tax-advantaged retirement plan for employees of public schools and nonprofits
Also known as a tax-sheltered annuity (TSA) plan
Eligible participants include teachers, 501(c)(3) employees, and certain church workers
Contributions reduce taxable income; withdrawals in retirement are taxed as ordinary income

Similarities and Differences with 401(k) Plans

Same base contribution limit as 401(k) — $23,500 in 2025, plus age-50 catch-up of $7,500
Early withdrawal penalty of 10% before age 59½ and RMDs at age 73 apply to both
403(b) plans may use annuity contracts as the primary investment vehicle
Some 403(b) plans are exempt from ERISA, reducing employer obligations
Investment options are often more limited than typical 401(k) lineups

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What Is a 403(b) Plan?

Similarities and Differences with 401(k) Plans

The 15-Year Catch-Up Rule

Investment Options — Annuities vs Mutual Funds

Roth 403(b) Option

Employer Matching and Vesting

Common Pitfalls to Watch For

Related Topics

401(k) Withdrawal Rules

457(b) Plans: Deferred Compensation for Executives

529 Plans

What Is a 403(b) Plan?

Similarities and Differences with 401(k) Plans

The 15-Year Catch-Up Rule

Investment Options — Annuities vs Mutual Funds

Roth 403(b) Option

Employer Matching and Vesting

Common Pitfalls to Watch For

Related Topics

401(k) Withdrawal Rules

457(b) Plans: Deferred Compensation for Executives

529 Plans