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What is a 403(b) Plan?

What is a 403(b) Plan?

A 403(b) plan, also called a tax-sheltered annuity or TSA plan, is a retirement plan offered by public schools and certain 501(c)(3) tax-exempt organizations. Employees save for retirement by contributing to individual accounts.

A 403(b) plan is similar to a 401(k) plan, in that it allows participants to contribute a portion of their income (through paycheck deductions) to a tax qualified retirement account. Instead of being taxed when you earn money, you pay taxes on funds as you withdraw them from your account in retirement. This allows you to be strategic with your taxes, choosing how much to withdraw each year based on income level.

Why Invest in a 403(b) Plan? 

In our experience, many teachers, county employees, and other eligible employees will often contribute to an annuity in their 403(b) accounts. While this may be the best investment for the more risk adverse investor, 403(b) plans offer much more than that. The majority of the 403(b) that we manage for our clients are invested in mutual funds, much like 401(k) plans. This could allow for better risk adjusted returns with lower overall fees, and more flexible investment options.

Another benefit to investing in a 403(b) is the increased eligibility. While a traditional IRA has income limitations for tax-deferral contributions, and a much lower annual maximum contribution amount, 403(b) tax deferred contributions are not phased out at any income level. For 2025,  there is an annual contribution maximum up to $31,000 (age based) versus $8,000 for a traditional IRA (age based).

While CalSTRS and CalPERS will be the foundation of any retirement plan for educators and county employees, we have found that it very often is not enough to sustain the retirement lifestyle our client's desire. Contributing to a 403(b) plan can help bridge that gap.

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.