Financial Answer Center
Public employees and employees of not-for-profit organizations have other types of plans available to them which are similar to a 401(k), but are different when you take a closer look. 403(b) plans are available to employees of public educational organizations and tax-exempt organizations. Section 457 Plans are available to state or local government employees and employees of non-church tax-exempt organizations.
These are plans that are available to employees of public educational organizations and tax-exempt organizations.
403(b) plans, like 401(k) plans, allow you to make elective pre-tax contributions to the plan and to defer tax on income until retirement. Distributions from a 403(b) plan are taxed as ordinary income.
What makes a 401(k) plan different from a 403(b) plan?
The major differences between a 401(k) plan and a 403(b) plan are as follows:
403(b) Contribution Limits
The IRS places an annual dollar limit on your pre-tax contributions to a 403(b) plan. The limit is indexed for inflation, so that in future years, the dollar limit may be higher. This limit in 2016 is $18,000 (same in 2015), plus up to $6,000 (same in 2015) of catch-up contributions if you are at least age 50. In addition, if you have completed 15 years of service to qualified institutions and meet other conditions, you are eligible for additional Lifetime Catch-up contributions (contact your benefits administrator for details). All pre-tax contributions made to any 403(b), 401(k), SEP, or SIMPLE plan are counted towards these limits.
Overall Contribution Limits
The total annual contribution that can be made in 2016 to your 403(b) plan, as with a 401(k) plan, cannot exceed 100% of your compensation or $53,000 whichever is less (same in 2015).
If you are eligible to participate in a 403(b) plan, and require more detailed information, contact your benefits department.