What is the Difference Between 403b and IRA?

The main differences between a 403(b) and an Individual Retirement Account (IRA) are related to eligibility, contribution limits, tax benefits, and investment options. Here are the key differences:

1. Eligibility: A 403(b) is only offered by certain employers, such as non-profit hospitals, schools, or churches. An IRA can be opened by anyone with qualifying earned income.
2. Contribution Limits: A 403(b) allows employee contributions up to $22,500 in 2023 ($30,500 for those age 50 or older), while IRAs only allow up to $6,500 ($7,500 if you're age 50 or older). These base numbers increase to $23,000 and $7,000 in 2024.
3. Tax Benefits: Contributions to 403(b) plans are made with pre-tax dollars, meaning that you will pay tax on distributions. Contributions to Roth IRAs come from after-tax dollars, resulting in tax-free distributions.
4. Investment Options: An IRA generally offers more and often better investment choices than a 403(b), and IRA fees tend to be lower, sometimes significantly so.

Both 403(b) and IRA accounts are tax-advantaged retirement accounts, but they have different rules and maximum contribution limits. It is possible to contribute to both a 403(b) and an IRA in the same year, as long as you meet the income limits for the IRA. Using both vehicles can be a wise strategy for your retirement, as it allows you to benefit from employer matches in a 403(b) and the flexibility and investment options of an IRA.

Comparative Table: 403b vs IRA

Here is a table comparing the differences between a 403(b) and an IRA:

Both 403(b) and IRA accounts offer tax-advantaged retirement savings, but there are key differences in terms of eligibility, contribution limits, employer contributions, tax benefits, and investment options. You can contribute to both a 403(b) and an IRA if your employer offers a 403(b) plan and your annual income does not exceed the limit for IRAs.