403(b) Plan Fix-It Guide - 403(b) Plan Overview


A 403(b) tax-sheltered annuity plan is a retirement plan offered by public schools and certain organizations exempt from tax under Internal Revenue Code (IRC) Section 501(c)(3). Individuals generally may obtain a 403(b) annuity or account only under an employer’s 403(b) plan. 403(b) plan investments may be one or more of the following:

  • annuity contract - a contract provided through an insurance company
  • custodial account - an account invested in mutual funds
  • retirement income account (generally invested in either annuities or mutual funds) set up for church employees

Generally, elective deferrals made under salary reduction agreements (known as employee contributions, elective deferrals or salary reduction contributions) fund the benefits of a 403(b). Some employers may also provide matching contributions and nonelective employer contributions.

Written plan requirement

The terms of a 403(b) plan must be in the form of a written plan that:

  • Complies in form and operation with all applicable 403(b) requirements under federal tax law and Income Tax Regulations; and
  • Contains all material terms and conditions for eligibility, benefits, limitations, the contracts available under the plan, and time and form under which benefit distributions would be made.

Benefits of contributing to a 403(b) plan

  • You don’t pay income tax on allowable contributions in the year you make them.
    • You don’t pay tax on allowable (non-Roth) contributions until you begin making withdrawals from the plan, usually after retirement.
    • You either exclude or deduct from income allowable contributions to a 403(b) plan.
    • However, if you contribute to a Roth 403(b) program, you pay tax on plan contributions when you make them. Qualified plan distributions are tax-free, if you meet certain conditions at the time of the distribution.
  • Earnings and gains on amounts in your 403(b) account aren’t taxed until you withdraw them.
    • Earnings and gains on amounts in a Roth account aren’t taxed if your withdrawals are qualified distributions.
  • Some participants may be eligible for a retirement savings contributions tax credit for elective deferrals made to a 403(b) plan.

403(b) Plan Fix-It Guide
EPCRS Overview
403(b) Plan Checklist PDF
IRC 403(b) Tax-Sheltered Annuity Plans
Additional Resources