403(b) vs. Roth IRA: What’s the Difference?

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A 403(b) is an employer-sponsored retirement plan, and a Roth IRA is an individual account you open yourself. A 403(b) is not an IRA, even though the two are often mentioned together. The 403(b) is offered by public schools, nonprofits, and certain other tax-exempt employers. It has much higher contribution limits: $24,500 of employee deferrals in 2026 versus $7,500 for a Roth IRA. Contributions usually come out of your paycheck before income tax, and some plans add an employer match. A Roth IRA takes after-tax money, has income limits, and gives tax-free qualified withdrawals plus a wider choice of investments. You can contribute to both in the same year, and for many savers the practical question is the order in which to fund them.

How a 403(b) plan works

A 403(b), sometimes called a tax-sheltered annuity plan, works much like a 401(k). Eligible employees include workers at public school systems, nonprofit organizations, and some churches and hospitals. You choose a percentage or dollar amount, and your employer deducts it from each paycheck.

Investments. The employer sponsors the plan and generally picks the approved vendors, often insurance companies or mutual fund providers. You can only invest in what the plan makes available. If you don’t make an election, contributions may go into a default investment. Menus, fees, and features vary by employer, so the plan documents determine what you actually get.

Employer contributions. Some employers match part of what you contribute. A common formula matches dollar for dollar up to a percentage of salary, though formulas vary. Matching dollars may be subject to a vesting schedule, which means you may need to stay a set number of years before you keep them in full.

Other features. Many plans allow loans, and some allow hardship withdrawals. An IRA does not allow loans at all.

403(b) contribution limits for 2026

How 403(b) contributions are taxed

Pretax salary-reduction contributions come out of your pay before federal income tax is calculated, which lowers your taxable income for the year. They are still subject to Social Security and Medicare taxes.

Hypothetical example: Assume you earn $3,000 in a pay period and face a simplified flat 15% income tax rate. Tax on the full amount is $450. If you contribute $500 pretax to your 403(b), taxable pay falls to $2,500 and the tax drops to $375, saving $75 for that paycheck. Actual federal tax uses marginal brackets, so your real savings depend on your bracket and withholding.

Money inside the account grows tax-deferred, so dividends, interest, and gains aren’t taxed each year. You pay ordinary income tax on withdrawals at your tax rate in retirement. Withdrawals generally avoid the 10% additional tax once you reach age 59½, with exceptions. Traditional 403(b) balances are also subject to required minimum distributions starting at age 73 under current law.

How a Roth IRA works

A Roth IRA is a personal account you open at a brokerage firm, bank, or other financial institution. Your employer has no role, so the investment menu is whatever that institution offers, usually a broad range of stocks, bonds, funds, and ETFs.

Contribution limits. In 2026, you can contribute up to $7,500, or $8,600 if you’re 50 or older. You also need taxable compensation such as wages or self-employment income, and your contribution can’t exceed what you earned. A spouse without earnings may be able to contribute based on the working spouse’s income when filing jointly. The deadline for a given tax year is generally the tax filing deadline the following spring. 403(b) deferrals, by contrast, have to come out of paychecks during the calendar year.

Income limits. Your eligibility depends on modified adjusted gross income (MAGI) and filing status:

A 403(b) has no income test. That difference matters most for higher earners: at these income levels your 403(b) stays fully available while your direct Roth IRA access shrinks or disappears.

How Roth IRAs are taxed

You contribute money you’ve already paid income tax on, so there’s no deduction. Earnings grow tax-free. Qualified withdrawals, generally those made after age 59½ once the account has met the five-year holding requirement, are completely tax-free.

Your regular contributions can come out at any time, at any age, with no tax or penalty, because you’ve already paid tax on them. Earnings withdrawn early can trigger income tax and the 10% additional tax unless an exception applies. The original owner also never has to take required minimum distributions from a Roth IRA.

403(b) vs. Roth 403(b) vs. Roth IRA

Much of the confusion comes from the Roth 403(b), also called a designated Roth account. Employers have been allowed to offer one since 2006, and many 403(b) plans do. Your plan may give you a choice between pretax (“traditional”) and Roth contributions, or let you split between them.

Traditional 403(b) vs. Roth 403(b). Both sit in the same plan, use the same investment menu, and share a single elective deferral limit: $24,500 combined in 2026, not $24,500 each. The only difference is timing of tax. Traditional contributions cut your taxable income now and are taxed later. Roth contributions are taxed now, and qualified withdrawals are tax-free later.

Roth 403(b) vs. Roth IRA. Both use after-tax money and offer tax-free qualified withdrawals, but they are not the same account:

• The Roth 403(b) has the much higher 403(b) limit. The Roth IRA has the $7,500 limit.
• The Roth 403(b) has no income limit, so high earners can use it even when barred from a direct Roth IRA contribution.
• The Roth 403(b) uses the employer’s investment menu. A Roth IRA is limited only by the institution you choose.
• A Roth 403(b) may allow loans. A Roth IRA does not.
• Contributions to a Roth IRA can be withdrawn freely. Early withdrawals from a Roth 403(b) generally come out as a proportional mix of contributions and earnings, so part of the amount may be taxable.

Does the employer match Roth 403(b) contributions? Many plans match Roth 403(b) contributions the same way they match pretax ones. Traditionally the match itself goes into the pretax side of the account and is taxed when withdrawn. Under SECURE 2.0, plans may now let you receive matching contributions as Roth. Those amounts are included in your taxable income for the year they’re allocated. Whether that option exists depends on your plan.

Starting in 2026, SECURE 2.0 also requires catch-up contributions to be made as Roth for participants whose prior-year wages from the employer exceeded an indexed threshold. If you’re 50 or older and a higher earner, your plan may route your catch-up dollars to the Roth side automatically.

Which should you fund first?

Since you can fund both accounts, the real question is where each next dollar goes. A widely used sequence looks like this:

1. Contribute enough to the 403(b) to get the full employer match, if there is one. Matching money comes on top of your pay. No IRA offers it.
2. Fund a Roth IRA, if you’re eligible. You get a broad investment menu, tax-free qualified growth, and easy access to your contributions in an emergency.
3. Return to the 403(b) with any money you still want to save, up to its limit.

Hypothetical example: Maria, 32, earns $60,000 at a nonprofit hospital. Her plan matches 50% of contributions up to 6% of salary. She wants to save $10,000 a year.

• She puts 6% ($3,600) into her 403(b), and her employer adds $1,800.
• She contributes $6,400 to a Roth IRA, which keeps her under the $7,500 limit. Her income is well below the single-filer phase-out.
• Total going toward retirement: $11,800, including the match.

Had Maria skipped the 403(b) and put all $10,000 elsewhere, she would forgo $1,800 a year of employer contributions, a cost that compounds over decades.

Traditional or Roth: the tax-rate question

Choosing between a traditional 403(b) and Roth money (in a Roth IRA or Roth 403(b)) mostly comes down to your tax rate now versus your expected rate in retirement.

Hypothetical example, same tax rate: You have $1,000 of pretax earnings and a 22% tax rate both now and in retirement. Assume the investment grows fourfold.

• Traditional: All $1,000 goes in, grows to $4,000, and is taxed at 22% on withdrawal. You keep $3,120.
• Roth: You pay $220 in tax first, invest $780, and it grows to $3,120 tax-free. You keep $3,120.

With identical tax rates, the outcomes match. The difference appears when rates change:

• If your rate in retirement is lower than today, traditional contributions come out ahead.
• If your rate in retirement is higher, which is plausible early in a career or if tax law changes, Roth contributions come out ahead.

Since nobody knows future tax rates, many people hold both types. Having pretax money and Roth money lets you control taxable income in retirement by choosing which account to draw from each year.

Exceptions that change the answer

The “match first, then Roth IRA, then 403(b)” sequence doesn’t fit everyone. These situations shift it:

Your income is too high for a Roth IRA. Above the phase-out ranges, you can’t contribute directly, but a Roth 403(b), if your plan offers one, still gives you Roth treatment. Some high earners use a “backdoor” approach instead: a nondeductible traditional IRA contribution converted to a Roth. The pro-rata rule can make part of the conversion taxable if you hold other pretax IRA money.

Your employer offers no match. Step one disappears. The decision then rests on tax rates, investment choices, and fees. A plan with low-cost funds may compete well with an IRA. A plan with a narrow or expensive menu makes the Roth IRA relatively more appealing for the first $7,500.

You need flexibility before retirement. Roth IRA contributions can be withdrawn without tax or penalty, which makes the account a partial backstop for emergencies. A 403(b) may allow loans, but a loan must be repaid, often through payroll, and leaving the job can accelerate repayment.

You plan to stop working before 59½. If you separate from service in or after the year you turn 55, you can take withdrawals from that employer’s 403(b) without the 10% additional tax. That exception does not apply to IRAs. A large 403(b) balance can therefore be more accessible in early retirement than the same money rolled into an IRA.

You’re in a high bracket now. The upfront deduction from traditional 403(b) contributions is worth more at higher marginal rates. Saving the deduction for those years and using Roth money in lower-income years is a common way to balance the two.

FAQs

The Bottom Line

Workers at public schools, nonprofits, and hospitals can use both accounts in the same year, so the useful decision is order. For many savers, that means contributing enough to the 403(b) to capture the full match, funding a Roth IRA if eligible, then returning to the 403(b). High earners, plans without a match, and early retirees may need a different mix, and holding both pretax and Roth money adds flexibility in retirement.