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Is a 403(b) an IRA?

A 403(b) is not an IRA. Both are retirement accounts with similar tax benefits, but they have different contribution limits, and 403(b)s are offered only through employers.
Feb. 25, 2020
Investing, IRA, Other Retirement Accounts
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While 403(b) plans and IRAs are both retirement accounts that offer tax benefits, a 403(b) is not an IRA.

Both types of plans do allow for pretax contributions — that can mean a lower tax bill in the year you contribute — and in both plans your money grows tax-deferred. (Traditional IRAs restrict who can make pretax contributions; read the IRA deduction limits here.)

But the plans have some major differences, too. For one, only an employer can set up a 403(b) plan, which it then offers to its workers. An IRA is set up by an individual for his or her own use.

Here are some other differences:

How a 403(b) and an IRA differ

Access

To be able to save money in a 403(b) plan, you must work for an employer that offers one. Generally, 403(b) plans are offered by nonprofit employers such as schools and hospitals. Here’s a helpful IRS page about 403(b) plans.

In contrast to a 403(b), anyone who has income from work — what the IRS calls “taxable compensation” — can open up and contribute to an IRA. (If you’re a married couple who files jointly, a nonworking spouse can also contribute, thanks to the spousal IRA.) Here’s more on how and where to open an IRA.

Contribution limits

Another big difference between these two types of retirement accounts is that you can contribute much more money to a 403(b) plan than you can to an IRA.

The annual maximum contribution to a 403(b) is $19,500 in 2020, compared with a $6,000 annual maximum to an IRA. People age 50 or older can contribute up to $26,000 to a 403(b) in 2020, compared with their $7,000 maximum contribution to an IRA. Employees with 15 or more years of service with their employer may also qualify for as much as $15,000 in total additional contributions to a 403(b) plan.

Keep in mind that the maximum 403(b) contribution is a combined limit: If you also contribute to a 401(k), SIMPLE IRA or some other workplace retirement plans, the annual maximum is for all of those plans combined.

But the 403(b) contribution limit is separate from the limit for a traditional IRA or Roth IRA. That means you’re allowed to contribute the maximum to a 403(b), and contribute the maximum to a traditional or Roth IRA in the same year. (Note that income limits restrict who can contribute to a Roth IRA.)

» Learn more about IRAs

How to set up an IRA

You can set up an IRA with an online broker or bank in just a few minutes. There’s generally no cost to open an IRA, and often there’s no minimum deposit requirement. You can set up transfers from your bank account, and start with as little as $25 or so.

Here are three of our top picks for best IRA accounts:

Trade Fee

$0.00

$0.00

Account Minimum

$0

$0

Promotion

Up to $600

Up to $600

cash credit with qualifying deposit

Trade Fee

$0.00

$0.00

Account Minimum

$0

$0

Promotion

$100 to $2,500

$100 to $2,500

cash credit with a qualifying deposit or transfer

Management Fee

0.25%

0.25%

Account Minimum

$0

$0

Promotion

Up to 1 year

Up to 1 year

of free management with a qualifying deposit

» See more of our top picks in our roundup of best IRA accounts

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