Your 403(b): What Teachers Need to Know
Understand how your 403(b), pension, 457(b), and Social Security benefits may work together, and what to review before making retirement decisions.
Educators may have access to several retirement resources: a pension, a 403(b), a governmental 457(b), and an IRA. When available, these accounts can work together, but each has different contribution limits, investment choices, costs, tax treatment, and withdrawal rules.
The challenge is understanding what your employer offers and how the pieces fit together. Start with your pension system, approved-provider list, plan documents, and current account investments.
You may have more retirement options than you realize
Most private-sector workers get one retirement account and a match. Depending on the employer, an educator may have several.
potential retirement resources
A pension, 403(b), governmental 457(b), and IRA may all be available, depending on your employer and eligibility.
separate contribution limits
A 403(b) and governmental 457(b) generally have separate employee-deferral limits. See IRS.gov.
years of service
Some 403(b) plans permit an additional catch-up contribution for qualifying employees with at least 15 years of service. See IRS.gov.
Availability, eligibility, and contribution limits are set by your plan, your state system, and the IRS, and they change. Confirm your own numbers with your district and at IRS.gov.
Planning the years before Social Security and Medicare
Some educators become pension-eligible before Social Security and Medicare begin. That creates an important planning question: what resources will support the years between leaving work and beginning those benefits?
A 403(b), governmental 457(b), and other savings may help fund those years. Eligible distributions attributable to governmental 457(b) contributions generally are not subject to the additional 10% federal tax after separation from service, although income taxes and plan rules still apply.
You may be able to use both a 403(b) and 457(b)
The 403(b) and 457(b) limits are separate, not shared. Where both plans are offered, contributing to one does not use up the other’s limit, and both can sit alongside a pension.
Two common ways a 403(b) is held
This is the distinction that drives what a 403(b) costs, and many teachers do not know they have a choice. The same tax rules apply either way; the wrapper around your money is what differs.
An annuity contract
403(b)(1) - insurance
A 403(b) annuity is an insurance contract that may be fixed or variable. Depending on the contract, costs may include administrative expenses, mortality-and-expense charges, optional riders, and surrender charges. Any guarantees depend on the issuing insurer's claims-paying ability, and are not FDIC or SIPC coverage.
A custodial account
403(b)(7) - investments
A 403(b)(7) custodial account holds mutual funds without an insurance wrapper. Costs may include fund expenses, sales charges, recordkeeping fees, account fees, and advisory fees. Available providers and investments depend on your employer's plan.
This is general information, not a recommendation for or against either form. Which providers and account types are available to you depends on your employer’s approved-vendor list.
403(b) vs. 457(b)
What is it?
403(b)
A tax-sheltered retirement plan offered by public schools and many nonprofits.
457(b)
A deferred-compensation plan offered through government employers, including many public school systems.
How are contributions made?
403(b)
Paycheck deferrals, pre-tax or Roth depending on the plan.
457(b)
Paycheck deferrals, pre-tax or Roth depending on the plan.
Does it have its own contribution limit?
403(b)
Yes, its own annual IRS limit.
457(b)
Yes, a separate annual IRS limit - which is why the two can stack.
Early-withdrawal rule after leaving the job?
403(b)
Distributions before age 59½ may be subject to income tax and an additional 10% federal tax unless an exception applies.
457(b)
Eligible distributions attributable to 457(b) contributions generally are not subject to the additional 10% federal tax after separation from service. Different treatment may apply to money rolled into the plan from another account.
Is a Roth option available?
403(b)
Often available, though it depends on your specific plan.
457(b)
Often available, though it depends on your specific plan.
Can you use it alongside a 403(b)?
403(b)
It is the plan itself.
457(b)
A governmental 457(b) can often be used alongside a 403(b), with separate contribution limits. Confirm with your plan.
When both plans are offered, contributing to a 403(b) generally does not reduce the separate amount you may contribute to a governmental 457(b). Both may also be available alongside a pension.
Why 403(b) costs deserve attention
Governmental public-school 403(b) plans generally are not governed by ERISA in the same manner as private-sector 401(k) plans. An employer’s approved-provider list identifies companies permitted to offer accounts through the plan; it does not necessarily identify the lowest-cost or most appropriate option.
Costs can vary significantly among providers, investments, and contract types. An independent government study by the GAO found that 403(b) recordkeeping and investment fees varied widely from plan to plan. Review the complete cost, not one fee in isolation.
The honest number is the total of everything you pay, not any single line. For a 403(b) that usually means:
- The expense ratio of each investment you hold.
- Any account, platform, or advisory fee charged on top.
- If the plan is an annuity, the mortality-and-expense (M&E) charge and any optional rider costs.
- Any surrender charge - a fee for moving money out within a set number of years, common in annuity contracts.
Your plan administrator and the product prospectus disclose these figures. This is general information on how to compare costs, not a recommendation for or against any product or provider. See the GAO report and IRS Publication 571.
How a 403(b) fits with your teacher pension
For many public-school educators, a 403(b) is one part of a larger retirement picture that may also include a pension, governmental 457(b), IRA, and Social Security. The available benefits depend heavily on the state, employer, pension system, and membership tier.
Understand what your pension may provide
Where available, a state teacher pension (often called STRS or TRS) is a defined-benefit plan: it pays a set amount in retirement, usually figured from your years of service and final average salary rather than from an account balance. It is generally designed to replace part of your income rather than all of it.
Identify the income gap
Because a pension often replaces only a portion of pre-retirement pay, a 403(b), a governmental 457(b), or an IRA is what many educators use to close the difference. How large that gap is depends on your specific pension formula, so start with your own STRS/TRS handbook.
Confirm your Social Security record
Some school systems do not participate in Social Security, meaning teachers may not earn Social Security credits from that employment. However, they may qualify based on other covered work, or as a spouse or survivor. The Social Security Fairness Act, signed January 5, 2025, repealed the Windfall Elimination Provision and Government Pension Offset for benefits payable beginning in January 2024. If either rule previously reduced, or discouraged you from applying for, Social Security benefits, review your current record and eligibility directly with the Social Security Administration.
Pension formulas, vesting, and Social Security participation vary by state, system, and tier. The figures that apply to you live in your own STRS/TRS handbook - treat anything general here as a starting point, not a number for your situation.
See how your retirement benefits work together
A 403(b) may work alongside a pension, governmental 457(b), IRA, other savings, and Social Security. Coordinating the pieces can provide a clearer view of your retirement income.
What is a 403(b)?
- A 403(b) is an employer-sponsored retirement plan offered by public schools and many tax-exempt organizations, including hospitals, charities, and religious groups. It takes its name from the section of the Internal Revenue Code that governs it, just as the 401(k) does, and is sometimes called a tax-sheltered annuity. You contribute money from your paycheck up to an annual limit set by the IRS, and investments inside the account receive tax-advantaged treatment until you withdraw the money in retirement. Many plans offer both a pre-tax (traditional) option and a Roth after-tax option, though features vary widely from one employer's plan to another.
Two common forms of a 403(b)
- A 403(b) can be held as an insurance annuity contract or as a custodial account invested in mutual funds. The annuity form is the older of the two and is still common; it is an insurance product, and any guarantee it offers depends on the issuing insurer's claims-paying ability. The custodial form, available since 1974, holds mutual funds with no insurance wrapper. The tax treatment is the same either way - the difference is in the costs and the features, and in which providers your employer has approved. Knowing which form your plan uses is the first step to understanding what you pay. See IRS Publication 571.
How 403(b) contributions work
- Each year the IRS sets a limit on how much you can defer into a 403(b), with an additional catch-up amount once you reach age 50 and, for certain employees ages 60 through 63, an enhanced catch-up subject to current IRS and plan rules. Some 403(b) plans also offer a separate service-based catch-up for employees with at least 15 years of service, which not all plans include. Because these figures change most years and depend on your plan's rules, check the current limits in IRS Publication 571 and confirm the details with your plan administrator.
How a 403(b) compares to a 457(b)
- A 403(b) is a tax-sheltered plan for schools and nonprofits, while a 457(b) is a deferred-compensation plan for government and some nonprofit staff. They are similar in that both let you defer part of your pay and often offer pre-tax or Roth contributions. A practical difference is that eligible distributions attributable to governmental 457(b) contributions generally are not subject to the additional 10% federal tax after you separate from service, whereas a 403(b) distribution before age 59½ may be. Where an employer offers both, a governmental 457(b) and a 403(b) can often be used together, each with its own IRS limit. This is general information, not tax or investment advice, and plan rules vary by employer.
Changing jobs or retiring
- When you leave a teaching position or retire, your 403(b) does not disappear - you generally have several options. You may be able to leave the money in the plan, move it to a new employer's plan if allowed, or roll it into an IRA. Our rollover guide walks through these options and their tradeoffs without recommending one. If your plan is an annuity, check for a surrender charge before moving money, since it can apply within a set number of years. Withdrawals before age 59½ may be subject to income tax and an additional 10% federal tax, with some exceptions. This is general education, not tax or legal advice; for specifics, see the IRS or a qualified tax professional.
FAQ
What is a 403(b)?
A 403(b) is an employer-sponsored retirement plan offered by public schools and many tax-exempt organizations. You contribute from your paycheck up to an annual IRS limit, and the balance grows tax-advantaged until you withdraw it in retirement. It is sometimes called a tax-sheltered annuity. Plan features vary by employer.
Who is eligible for a 403(b)?
403(b) plans are commonly offered to public-school teachers and staff, and to employees of many tax-exempt organizations such as hospitals, charities, and religious groups. Availability and terms depend on your employer's plan.
Is a 403(b) always an annuity?
No. A 403(b) can be held as an insurance annuity contract, or as a custodial account invested in mutual funds with no insurance wrapper. Many plans are offered as annuities, but a mutual-fund custodial account is often an option too. Which providers are available depends on your employer's approved-vendor list. See IRS Publication 571.
Can I have both a 403(b) and a 457(b)?
Often, yes. If your employer offers both, a governmental 457(b) can generally be used alongside a 403(b), and the two have separate contribution limits set by the IRS. Whether both are available depends on your employer's plans, so confirm with your plan administrator and see IRS.gov for the current limits.
What is the difference between a 403(b) and a 457(b)?
A 403(b) is a tax-sheltered plan for schools and nonprofits, while a 457(b) is a deferred-compensation plan for government and some nonprofit staff. One practical difference is that eligible distributions attributable to governmental 457(b) contributions generally are not subject to the additional 10% federal tax after separation from service, whereas a 403(b) distribution before age 59½ may be. Rules vary by plan.
Why do people say 403(b) plans can have high fees?
The 403(b) started as an annuity-only plan in the 1950s, and many K-12 plans are not covered by ERISA, so they lack the fiduciary oversight of the menu that most private-sector 401(k)s have. A government study (GAO) found 403(b) fees varied widely from plan to plan. Being on your district's approved-vendor list means a provider was cleared to offer the plan, not that a given option is low cost or right for you. Because small differences compound over a career, reviewing the all-in cost of your options is worthwhile. See the GAO report and IRS Publication 571.
How do I figure out what my 403(b) costs?
Add up the all-in cost: the investment expense ratios, plus any account or advisory fee, plus - if the plan is an annuity - mortality-and-expense charges, rider costs, and any surrender charge for moving money out. Your plan administrator and the product prospectus disclose these. The GAO's report gives a sense of how widely these costs can range.
Are 403(b) annuity guarantees insured?
No. If a 403(b) is held as an annuity, any guarantee it offers depends on the issuing insurance company's claims-paying ability. It is not FDIC-insured like a bank deposit, and it is not covered by SIPC. This is general information, not a recommendation for or against any product.
How does a 403(b) fit with my teacher pension?
A state teacher pension (STRS/TRS) is a defined-benefit plan that pays a set amount based on your service and salary, and it often replaces only part of your pre-retirement income. A 403(b), a 457(b), or an IRA is what many educators use to help fill the gap. The size of that gap depends on your pension formula, so start with your own STRS/TRS handbook.
What happens to my 403(b) when I change jobs?
You generally have several options: leave it in the plan, move it to a new employer's plan if allowed, or roll it into an IRA. Our rollover guide walks through them without recommending one.
Sources and further reading
The rules and figures on this page come from the primary sources below. Because contribution limits, catch-ups, and thresholds change most years, confirm the current figures directly with the IRS before you act.
- IRS - Publication 571, Tax-Sheltered Annuity Plans (403(b) Plans)The authoritative rulebook: contribution limits, catch-ups, distributions, and rollovers.
- IRS - Retirement plans FAQs on 403(b) tax-sheltered annuity plansPlain-language answers on eligibility and the account types a 403(b) can take.
- GAO - 403(b) Investment Options, Fees, and Other Characteristics VariedThe independent government study on how widely 403(b) fees and options vary.
- 403bwiseA long-running nonprofit resource that helps educators understand and compare 403(b) plans.
Last updated September 2026. General education, not financial, tax, or legal advice. Parsonex does not recommend a particular 403(b) product, provider, or investment on this page.
Have questions about your 403(b)?
This material is for educational purposes only. It does not constitute investment, tax, or legal advice, and it is not a recommendation of any security or strategy. Individual circumstances vary. Consult a qualified professional before making financial decisions.