403b vs. IRA: Key Differences

A 403(b) and an IRA are both tax-advantaged retirement accounts, but they differ in how they’re funded, who can use them, and the rules that apply. A 403(b) is offered by public schools, nonprofits and certain government employers, while IRAs are opened individually. Contribution limits, investment choices, and withdrawal rules also vary. Understanding the distinctions between a 403(b) and an IRA can help in choosing a plan that aligns with your income and employment.

How you save and invest for retirement is a major financial consideration. A financial advisor can help you evaluate your choices and build a plan that fits your needs.

What Is a 403(b) Account?

A 403(b) is an employer-sponsored retirement account that’s also known as a tax-sheltered annuity (TSA). These retirement accounts are typically offered by nonprofit employers, like churches or eligible hospitals and schools.

A 403(b) plan allows employees to make pre-tax contributions into their retirement savings account. Any earnings on those contributions will remain untaxed until they are distributed (withdrawn) from the plan. Employers may also contribute to a 403(b) plan for an employee—through a company match or similar arrangement—if they so choose.

For 2025, workers can contribute up to $23,500 to a 403(b). Participants who are 50 or older can save an extra $7,500 via catch-up contributions. Starting in 2025, though, participants are eligible for “super catch-up contributions” between ages 60 and 63 and can save an extra $11,250, bringing their total contribution to $34,750.

In 2025, employee and employer contributions cannot exceed $70,000 or the employee’s total includible earnings during the most recent year, whichever is greater.

Employers can choose to invest the funds placed in a 403(b) account in one of three ways:

An annuity contract, offered through an insurance company
A custodial account which is then invested in mutual funds
A retirement income account (for church employees only)

When it comes time to withdraw those funds, employees will need to wait until they reach age 59 ½, experience a severance from their employed position, become disabled or encounter a qualifying financial hardship. Early withdrawals are subject to a 10% penalty on top of income tax. Alternatively, an employee’s beneficiaries can withdraw from the fund if the employee passes away before reaching age 59 ½.

Like other pre-tax retirement accounts, required minimum distributions (RMDs) must be taken starting at age 73 (age 75 if you were born in 1960 or later).

What Is an IRA?

An IRA, or individual retirement account, is a similar type of retirement plan. Most IRAs offer tax-deferred growth, meaning earnings grow without being taxed until you take distributions in retirement. There are two primary types of IRAs: traditional accounts and Roth IRAs.

Traditional IRAs can be held by banks, investment firms and brokerages, so there are many options for investing and growing your savings. You can contribute up to $7,000 in 2025 toward all of your IRAs ($8,000 if you’re age 50+) or up to your maximum taxable income for the year, whichever is less.

As of 2025, you can contribute to your IRA at any age. However, RMDs also apply to traditional IRAs at age 73 (75 for people born in 1960 or later).

403(b) vs. IRA: How Do They Compare?

When comparing 403(b) vs. IRA retirement savings accounts, here are five important points to keep in mind:

A 403(b) is only offered by certain employers, such as nonprofit hospitals, schools or churches. If your employer doesn’t offer you a 403(b) account, you aren’t eligible to contribute to one.
Anyone can open an IRA, as long as they have qualifying earned income. Some IRAs are employer-sponsored—and employers may even fund them on behalf of their employees—but IRAs can be opened individually as well.
Contribution limits between the two accounts vary. A 403(b) allows employee contributions up to $23,500 in 2025 ($31,000 for those age 50 or older), while IRAs only allow up to $7,000 ($8,000 if you’re age 50 or older).
Both 403(b)s and IRAs grow tax-free, and earnings are typically only taxed at withdrawal.
Both 403(b)s and IRAs are subject to RMD rules, if they are pre-tax accounts.

Bottom Line

Your retirement savings strategy can involve several different accounts, two of which could be a 403(b) and an IRA. Both of these accounts allow for tax-deductible contributions and tax-free growth for employees with eligible income. A 403(b)—which is only available to employees of certain organizations—has higher annual contribution limits, while an IRA can offer a variety of options for tax and investment purposes.

Tips for Picking Your Retirement Accounts

A financial advisor can be a valuable resource when developing a retirement savings strategy. Finding a financial advisor can be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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