Other Retirement Accounts and Savings Options Beyond Your 403(b)
What other retirement accounts work alongside a 403(b)
A 403(b) is one tool, not the only one. You can open and fund other retirement accounts at the same time—a traditional IRA, a Roth IRA, a SEP-IRA if you have self-employment income, or a solo 401(k) if you run a side business. Each has its own contribution limit, tax treatment, and withdrawal rules. The key is understanding which accounts you can use together and which ones have limits that interact with each other.
Your employer's 403(b) and an IRA are separate accounts run by different institutions. You can contribute to both in the same year. However, if you have access to a 403(b) at work, the tax deduction for contributions to a traditional IRA phases out at higher income levels—a rule that does not apply to Roth IRAs. Understanding this interaction matters if you earn above a certain threshold and want to deduct your IRA contributions.
Key Takeaways
- You can open a traditional or Roth IRA even if you have a 403(b), but the tax deduction for a traditional IRA phases out if your income is high enough and you have workplace retirement coverage.
- A SEP-IRA or solo 401(k) makes sense only if you have self-employment income from freelance work, consulting, or a side business separate from your employer job.
- Contribution limits are per-account-type, not per-institution, so maxing out a 403(b) does not prevent you from also funding an IRA up to its own limit.
- Roth accounts (Roth IRA, Roth 403(b)) let you withdraw contributions anytime tax-free, while traditional accounts penalize early withdrawals before age 59½ with taxes and a 10 percent penalty.
- A backdoor Roth conversion is a strategy for high earners to fund a Roth IRA when direct contributions are blocked by income limits.
Traditional IRA vs. Roth IRA when you have a 403(b)
A traditional IRA works like a 403(b) in structure: you contribute pre-tax money, reduce your taxable income in the year you contribute, and pay income tax on withdrawals in retirement. The catch is the deduction phase-out. If you are covered by a 403(b) at work and your modified adjusted gross income (MAGI) exceeds a certain threshold, you cannot deduct the full amount of your traditional IRA contribution. The IRS publishes these thresholds each year, and they differ based on filing status and whether you are single or married.
A Roth IRA has no income phase-out for contributions. You contribute after-tax money, pay no tax on growth, and withdraw tax-free in retirement. The trade-off is that you do not get a deduction now. For many people with a 403(b), a Roth IRA is the better choice because it sidesteps the deduction phase-out entirely. You can also withdraw your contributions (not earnings) anytime without penalty, which gives you more flexibility than a traditional IRA.
The 2024 contribution limit for either type of IRA is $7,000 per year if you are under 50, or $8,000 if you are 50 or older. This limit is separate from your 403(b) limit, so you can fund both accounts in the same year. However, if you contribute to both a traditional IRA and a Roth IRA in the same year, the combined total cannot exceed the annual limit.
SEP-IRA and solo 401(k) for self-employment income
If you earn money outside your main job—through freelance work, consulting, or a small business—you can open a SEP-IRA or a solo 401(k) to save that income. These are not alternatives to your 403(b); they are additions that capture self-employment earnings your employer plan does not cover.
A SEP-IRA is simpler to set up and maintain. You can contribute up to 25 percent of your net self-employment income, up to a maximum of $69,000 per year (2024 limit). You open it at a bank or brokerage, make one contribution per year, and file a one-page form with your tax return. There is no ongoing paperwork. The downside is that if you have employees, you must contribute the same percentage for them as you do for yourself.
A solo 401(k) (also called a self-employed 401(k)) allows higher contributions if you have significant self-employment income. You can contribute both as an employee and as an employer, up to $69,000 per year (2024 limit). It requires more paperwork—you must file Form 5500 if the account grows above $16,000—but it gives you more control and the option to borrow against the balance. A solo 401(k) also lets you set up a Roth option, so you can split contributions between pre-tax and after-tax buckets.
How contribution limits work across multiple accounts
The IRS sets separate limits for each account type. Your 403(b) has its own limit (currently $23,500 per year if you are under 50, or $31,000 if you are 50 or older, with some plans allowing higher limits). An IRA has its own limit ($7,000 or $8,000). A SEP-IRA has its own limit (25 percent of self-employment income, up to $69,000). These limits do not overlap.
What does overlap is the limit on how much you can contribute across all defined-contribution plans combined. If you have a 403(b) and a solo 401(k), the total employee deferrals across both cannot exceed the annual limit for employee deferrals. This is a less common constraint, but it matters if you are trying to maximize savings across multiple employer-type plans. IRAs sit outside this rule, so they do not count toward the combined limit.
The practical takeaway: you can max out a 403(b) and also max out an IRA in the same year with no conflict. If you have self-employment income and open a SEP-IRA or solo 401(k), those contributions are separate and do not reduce how much you can put into your 403(b) or IRA.
Backdoor Roth conversions for high earners
If your income is too high to contribute directly to a Roth IRA, a backdoor Roth conversion is a workaround. You contribute to a traditional IRA (which has no income limit), then immediately convert it to a Roth IRA. The conversion is taxable in the year you do it, but once the money is in the Roth, it grows tax-free and you can withdraw it tax-free in retirement.
The catch is the pro-rata rule. If you already have money in a traditional IRA, SEP-IRA, or SIMPLE IRA, the IRS treats all your traditional IRAs as one pool for tax purposes. When you convert part of it to a Roth, you owe tax on a portion of the entire pool based on how much pre-tax money is in it. This can make a backdoor conversion expensive or impractical if you have significant traditional IRA balances.
A backdoor Roth makes sense only if you have little or no money in traditional IRAs and your income exceeds the Roth contribution limit. It is a strategy for high earners with a 403(b) who want to save additional money in a Roth account. You should consult a tax professional before executing a backdoor Roth to confirm the pro-rata calculation and understand the tax bill.
Comparing account types: tax treatment and withdrawal rules
| Account Type | Contribution Tax Treatment | Withdrawal Before 59½ | Required Withdrawals at 73 |
|---|---|---|---|
| 403(b) Traditional | Pre-tax (reduces current income) | 10% penalty + income tax (some exceptions) | Yes, required minimum distributions apply |
| 403(b) Roth | After-tax (no deduction) | Contributions tax-free; earnings subject to penalty + tax | Yes, required minimum distributions apply |
| Traditional IRA | Pre-tax (deductible, with limits) | 10% penalty + income tax (some exceptions) | Yes, required minimum distributions apply |
| Roth IRA | After-tax (no deduction) | Contributions anytime tax-free; earnings subject to penalty + tax | No required minimum distributions during account holder's lifetime |
| SEP-IRA | Pre-tax (fully deductible) | 10% penalty + income tax (some exceptions) | Yes, required minimum distributions apply |
| Solo 401(k) | Pre-tax or Roth (you choose per contribution) | 10% penalty + income tax (some exceptions); can borrow | Yes, required minimum distributions apply |
The Roth IRA stands out because it has no required minimum distributions during your lifetime. This makes it useful for people who do not need the money in retirement and want to leave it to heirs tax-free. All other accounts require you to start taking distributions at age 73 (as of 2023, under the SECURE 2.0 Act), whether you need the money or not.
Early withdrawal rules also differ. With a Roth IRA, you can withdraw your contributions anytime without penalty or tax. With a traditional IRA, 403(b), or SEP-IRA, any withdrawal before 59½ triggers a 10 percent penalty plus income tax, with narrow exceptions (disability, medical expenses, first-time home purchase, and a few others). A solo 401(k) lets you borrow against your balance, which is another way to access money without triggering a withdrawal penalty.
When to open each account type
Start with your 403(b) if your employer offers one and matches contributions. The match is assistance programs and should be your first priority. After capturing the full match, decide whether to max out the 403(b) or open an IRA.
If you have self-employment income, open a SEP-IRA or solo 401(k) in the same tax year you earn that income. You can set up and fund a SEP-IRA as late as the tax filing deadline (including extensions), so you have until October 15 of the following year to open one for the prior year's income. A solo 401(k) must be opened by December 31 of the year you want to use it, though you can fund it until the tax deadline.
If your income is below the Roth IRA phase-out limit, open a Roth IRA and fund it early in the year so the money has more time to grow. If your income exceeds the limit, explore a backdoor Roth conversion with a tax professional. If you are unsure whether you can deduct a traditional IRA contribution, check the IRS phase-out table for your filing status and income, or ask your tax preparer.
Frequently Asked Questions
Can I contribute to a 403(b) and an IRA in the same year?
Yes. The contribution limits are separate. You can max out a 403(b) and also max out an IRA in the same year. The only constraint is the deduction phase-out for traditional IRAs if your income is high and you have workplace retirement coverage. Roth IRAs have no phase-out, so they are not affected.
What is a backdoor Roth and when should I do it?
A backdoor Roth is contributing to a traditional IRA and immediately converting it to a Roth IRA. It works when your income is too high to contribute directly to a Roth. You owe tax on the conversion in the year you do it, but the money then grows tax-free. It makes sense only if you have little or no existing traditional IRA balances, because the pro-rata rule can make the tax bill large. Consult a tax professional before attempting one.
Do I need a solo 401(k) or a SEP-IRA for my side business?
A SEP-IRA is simpler if you have no employees and want minimal paperwork. A solo 401(k) makes sense if you have significant self-employment income, want to split contributions between pre-tax and Roth, or want the option to borrow against the account. Both let you save much more than an IRA alone. Choose based on your income level and how much complexity you are willing to manage.
Can I withdraw from a Roth IRA before retirement without penalty?
You can withdraw your contributions anytime tax-free and penalty-free. Withdrawing earnings before 59½ triggers a 10 percent penalty and income tax, with narrow exceptions (disability, medical expenses, first-time home purchase). This flexibility makes a Roth IRA useful as an emergency backup, though it is not a substitute for a true emergency fund.
What happens to my IRA if I leave my job and roll over my 403(b)?
You can roll a 403(b) into a traditional IRA at your bank or brokerage. The money moves tax-free, and you do not owe tax or penalty. After the rollover, the IRA follows standard IRA rules: you can withdraw contributions to a Roth IRA (if you convert it), you owe tax on early withdrawals before 59½, and you must take required minimum distributions at 73. Keep the rollover separate from any existing IRA balances if you plan a backdoor Roth later, because the pro-rata rule treats all traditional IRAs as one account.