Skip to main content
Topic index
AAIAll About Investing
Menu
All articles

A 403(b) and a Roth IRA Are Different Accounts—Here's Why That Matters

By Felix Thorpe · Retirement Accounts Writer

A 403(b) is an employer retirement plan; a Roth IRA is an individual account you open yourself

A 403(b) is a workplace retirement savings plan offered by schools, hospitals, nonprofits, and some government employers. A Roth IRA is a personal retirement account you open at a bank, brokerage, or credit union. They are separate accounts with different rules about who can contribute, how much you can contribute, when you must withdraw money, and how your money is taxed.

The confusion is understandable: both let you save for retirement, both have annual contribution limits, and both can hold the same types of investments. But they operate under different tax codes, are managed by different institutions, and serve different purposes in your overall retirement plan. You can have both at the same time, and many people do.

Key Takeaways

  • A 403(b) is offered through your employer and contributions come from your paycheck; a Roth IRA is an account you open yourself and fund with money you already have.
  • 403(b) contribution limits are much higher than Roth IRA limits—the 403(b) limit was $23,500 in 2024, while the Roth IRA limit was $7,000.
  • A 403(b) may offer an employer match or other employer contributions, which a Roth IRA never does.
  • Roth IRA withdrawals in retirement are tax-free; 403(b) withdrawals are taxed as ordinary income.
  • You can contribute to both a 403(b) and a Roth IRA in the same year if your income is within the Roth IRA limits.

How contributions work: payroll deduction versus self-funding

With a 403(b), your employer sets up the plan and you authorize payroll deductions. Money comes out of your paycheck before you see it, which makes it easy to save consistently. Your employer may also contribute money on your behalf—a match, a profit-sharing contribution, or a fixed percentage—though this varies by employer and is never may provide.

With a Roth IRA, you fund the account yourself. You transfer money from your bank account to the IRA whenever you choose. There is no employer involvement and no employer contribution. You are responsible for tracking how much you have contributed each year and making sure you stay within the annual limit.

Contribution limits are not the same

The 403(b) contribution limit was $23,500 for 2024. If you are age 50 or older, you can contribute an additional $7,500 as a catch-up contribution, for a total of $31,000. These limits apply to your own contributions only; employer contributions are separate and do not count against this limit.

The Roth IRA contribution limit was $7,000 for 2024. If you are age 50 or older, you can contribute an additional $1,000 as a catch-up contribution, for a total of $8,000. This is a combined limit across all IRAs you own—if you have a traditional IRA and a Roth IRA, your contributions to both cannot exceed $7,000 total.

The 403(b) limit is higher because it is designed to be your primary retirement savings vehicle at work. The Roth IRA limit is lower because it is meant to supplement other retirement savings, not replace it.

Tax treatment during retirement is the key difference

Money you withdraw from a 403(b) in retirement is taxed as ordinary income at your tax rate that year. If you contributed $10,000 to your 403(b) and it grew to $50,000, you pay income tax on the full $50,000 when you withdraw it. This is true whether you contributed pre-tax dollars or after-tax dollars to the plan.

Money you withdraw from a Roth IRA in retirement is not taxed at all—not the contributions you made, and not the earnings on those contributions. If you contributed $10,000 and it grew to $50,000, you withdraw the full $50,000 tax-free. This is the defining feature of a Roth account and the reason many people prioritize Roth savings if they expect to be in a higher tax bracket in retirement.

Withdrawal rules differ significantly

A 403(b) requires you to begin taking withdrawals at age 73 (as of 2023; this age has been rising gradually). The IRS calculates a minimum withdrawal amount each year based on your age and account balance, and you must withdraw at least that amount. If you do not, you face a penalty of 25 percent of the shortfall (reduced to 10 percent if you correct it within two years).

A Roth IRA has no required minimum withdrawals during your lifetime. You can leave the money in the account to grow tax-free for as long as you live. This makes a Roth IRA useful if you do not need the money in retirement or want to leave it to heirs.

Both accounts penalize early withdrawal before age 59½, with some exceptions. A 403(b) allows withdrawals for hardship (defined narrowly by the IRS) or if you separate from service at age 55 or later. A Roth IRA allows you to withdraw your contributions (not earnings) at any time without penalty, which is a significant advantage if you need access to your money before retirement.

Income limits affect Roth IRA access, not 403(b) access

You can contribute to a 403(b) no matter how much money you earn. There is no income limit. If your employer offers the plan, you can participate.

A Roth IRA has income limits that phase out your contribution ability. For 2024, the limit began to phase out at $146,000 of modified adjusted gross income for single filers and $230,000 for married filing jointly. If your income exceeds the upper limit, you cannot contribute directly to a Roth IRA. This is why some higher-income earners use a strategy called a "backdoor Roth"—they contribute to a traditional IRA and then convert it to a Roth—but that is a separate process with its own rules.

You can have both accounts at the same time

Contributing to a 403(b) does not prevent you from also contributing to a Roth IRA, as long as your income is within the Roth IRA limits. Many people do both: they contribute to their employer's 403(b) to get the employer match and to take advantage of the higher contribution limit, and they also contribute to a Roth IRA for the tax-free growth and withdrawal flexibility.

The only limit that connects them is the catch-up contribution rule: if you are age 50 or older and contribute to both a 403(b) and an IRA, you can use the catch-up contributions for each account separately. Your 403(b) catch-up does not reduce your IRA catch-up limit, and vice versa.

Frequently Asked Questions

Can I roll a 403(b) into a Roth IRA?

Yes, but only as a Roth conversion, and you will owe income tax on the amount converted. You cannot do a direct rollover from a 403(b) to a Roth IRA; the money must go to a traditional IRA first, then be converted. The conversion is taxable in the year you do it, so this strategy works best if your income is temporarily low.

What happens to my 403(b) if I leave my job?

You keep the money in the account. You can leave it there if your balance is above $5,000 (rules vary by plan), roll it to an IRA at another institution, or roll it to your new employer's plan if they accept rollovers. You cannot withdraw it without penalty unless you are age 55 or older and separated from service.

Is a 403(b) better than a Roth IRA?

Neither is universally better. A 403(b) is better if your employer offers a match, because assistance programs is hard to turn down. A Roth IRA is better if you want tax-free withdrawals in retirement and access to your contributions before age 59½. Most people benefit from using both.

Can I contribute to a 403(b) if I also have a Roth IRA?

Yes. Contributing to one does not affect your ability to contribute to the other. Your only constraint is the Roth IRA income limit—if you earn too much, you cannot contribute to a Roth IRA, but you can still contribute to a 403(b).