A 403(b) and a Roth IRA are two investment accounts that give you tax benefits to save for retirement.
However, these accounts vary in terms of contribution limits, tax advantages and investment options, among other things. Importantly, 403(b) accounts are for employees of certain organizations. Find out more about how these accounts differ to see which is right for you.
403(b) vs. Roth IRA: A quick comparison
403(b)
Roth IRA
Where to open
Public schools and certain 501(c)(3) tax-exempt organizations offer these accounts for their employees
Brokers, banks or other financial institutions
Investment options
An annuity contract provided through an insurance company
A custodial account invested in mutual funds
A retirement income account set up for church employees(1)
All assets are permitted inside an IRA except collectibles and life insurance
The IRA custodian determines available investment options
Income limits
None
Individuals filing as single and head of household. Contribute up to $7,000 if your 2024 modified adjusted gross income (MAGI) is under $146,000; individuals with a MAGI above $146,000 can contribute a reduced amount until contributions are phased out upon reaching a MAGI of $161,000
Married couples filing jointly. Contribute up to $7,000 each if your MAGI is under $230,000 per year; married couples with a MAGI above $230,000 can contribute a reduced amount until contributions are phased out upon reaching a MAGI of $240,000
Contribution limits
$23,000 for pretax and Roth employee contributions for 2024
Employees 50 and older can save an extra $7,500 in catch-up contributions
Total employee and employer contributions can’t exceed the lesser of $69,0000 or 100% of the employee’s salary
$7,000 for those under age 50
$8,000 for those aged 50 and over
Eligibility requirements
Be an eligible employee of a 501(c)(3) tax-exempt organization, a public school system, a church or a public school system organized by Native American tribal governments(1)
No age requirements, but you need earned income to contribute
Income limits apply
Who can contribute
Employees and employers
Anyone with earned income, so long as their income doesn’t exceed a certain threshold
Tax advantages
Tax-deductible contributions and tax-deferred growth for a traditional 403(b) plan
Tax-free withdrawals in retirement for a Roth 403(b) plan
Earnings grow tax-free
Tax-free withdrawals in retirement
Withdraw contributions at any time tax- and penalty-free
Withdrawal restrictions
Withdrawals before age 59.5 generally incur a 10% additional tax
Withdrawals of earnings before age 59.5 from a Roth IRA you’ve held less than five years will incur taxes and penalties (exceptions apply)
Withdrawals of earnings after age 59.5 from a Roth IRA you’ve had more than five years will be subject to taxes but not penalties
Required minimum distributions (RMDs)
Must begin taking RMDs once the account holder is age 73
None
FDIC insurance
None
Roth IRAs that contain bank deposits such as CDs, savings accounts or money market accounts are insured up to $250,000
SIPC insurance
None
SIPC insures cash and securities up to $500,000 at SIPC-member brokers
Pros
Tax-deductible contributions
Salary deferrals simplify investing
Loans and hardship distributions are available to employees
Employer may match contributions
Tax-free growth and qualified distributions are tax-free
No RMDs
Withdraw contributions at any time without tax or penalty
Flexible investment options
Cons
Fees can be high
Penalties on early withdrawals
Investment options limited to those chosen by the employer
Must hold account for five years to withdraw funds penalty-free
Assuming you’re an employee of an eligible organization, a 403(b) might be better if you want to contribute more than the $7,000 allowable in an IRA in 2024 or if your employer offers a matching contribution. However, you might choose a Roth IRA if you want access to more investment options or want to avoid taking RMDs. If both options are available to you, you can choose to participate in both.
When to consider a 403(b)
A 403(b) might be a good option if:
You want a higher contribution limit. Contribute $23,000 to a 403(b) in 2024, compared to $7,000 with a Roth IRA.
Your employer matches your contributions. Get additional money toward your retirement savings just for contributing.
You’re ineligible to contribute to a Roth IRA because of your income. Income limits apply to Roth IRAs but not 403(b)s. To contribute to a Roth IRA, your modified adjusted gross income (MAGI) must be under $161,000 for 2024 if you’re a single tax filer or $240,000 if you’re a married couple filing jointly.
You want tax-deductible contributions. Contributions to a traditional 403(b) reduce your taxable income.
When to consider a Roth IRA
A Roth IRA might be a good option if:
You’ve maxed out your 403(b). If you have more than $23,000 to save for retirement, contribute up to $7,000 in total across all your Roth IRAs and traditional IRAs in 2024.
You want access to more investment options. Invest in traditional assets such as stocks, bonds, exchange-traded funds (ETFs) and mutual funds or alternative assets such as cryptocurrencies, real estate and venture capital.
You don’t want RMDs. Roth IRAs don’t have RMDs like 403(b)s. Roth IRA distributions are only required upon the account holder’s death.
You want flexible access to your contributions. While it’s generally not a good idea to withdraw retirement money early, you can withdraw your Roth IRA contributions at any time without tax or penalties.
403(b)s and Roth IRAs are both retirement accounts that can help you grow your retirement savings while benefiting from tax advantages. But that’s about where the similarities of these two accounts end.
Contribution limits, investment options and eligibility requirements vary between these two accounts.
403(b) vs. Roth IRA: Where to open these accounts
403(b)s are only available through an eligible employer, including public schools and certain 501(c)(3) tax-exempt organizations.
On the other hand, Roth IRAs are available through most banks, credit unions and brokers. The best stock trading apps offer Roth IRAs, traditional IRAs and other account types, letting you invest for different goals all under one roof.
Alternatives to 403(b)s and Roth IRAs
403(b)s and Roth IRAs are two options for your retirement savings, but, if you have different goals, you may be better served with other account types:
Traditional IRA. Consider this type of IRA if you want to save for retirement and benefit from a tax deduction in the year you make your contributions. Since you pay taxes on your money when you begin taking withdrawals, a traditional IRA may be a good option if you think you’ll be in a lower tax bracket at retirement. The best IRA accounts offer flexible investment options, low fees, research tools and educational resources to help you invest.
High-interest savings accounts. Consider a high-yield savings account if you want easy access to cash savings for an emergency fund.
Compare brokerages that offer IRA accounts
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Frequently asked questions
What is better: a 403(b) or Roth IRA?
A 403(b) might be a better option if you get an employer match or have more money to save beyond the $7,000 contribution limit for Roth IRAs. However, a Roth IRA might be better if you want access to more investment options or want to avoid required minimum distributions at age 73.
Should I convert my 403(b) to a Roth IRA?
To convert a 403(b) to a Roth IRA, you either need to be 59.5 or have left your job. You might consider converting your 403(b) to a Roth IRA if your 403(b) comes with high fees or you want to access your contributions before retirement.
Should I contribute to 403(b) pretax or Roth?
You might consider a traditional 403(b) if you want to reduce your taxable income in the year you make the contribution. However, a Roth 403(b) might be more appealing if you want tax-free withdrawals in retirement.
Is a 403(b) a good retirement plan?
A 403(b) can be a solid option for a retirement plan, especially if it has low administrative costs, comes with an employer match and offers investment options that align with your goals.
Matt Miczulski is an investments editor at Finder. With over 450 bylines, Matt dissects and reviews brokers and investing platforms to expose perks and pain points, explores investment products and concepts and covers market news, making investing more accessible and helping readers to make informed financial decisions.
Before joining Finder in 2021, Matt covered everything from finance news and banking to debt and travel for FinanceBuzz. His expertise and analysis on investing and other financial topics has been featured on CBS, MSN, Best Company and Consolidated Credit, among others. Matt holds a BA in history from William Paterson University.
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