---
title: 403(b) Plan | Meaning, Features, Advantages, & Disadvantages
description: In this comprehensive guide, learn everything you need to know about 403(b) retirement plans, their definition, features, advantages, and disadvantages.
image: https://www.carboncollectiveinvesting.com/hubfs/403(b)_Plan_-_FI.png
---

[![Carbon collective](https://www.carboncollectiveinvesting.com/hubfs/raw_assets/public/CarbonCollective_August2021%20copy/images/carbon-collective-green-investing-logo-white.4f6047d4.svg "Carbon collective")](https://www.carboncollectiveinvesting.com/)

- About
- Employers 
    - [Sustainable 401(k)](https://www.carboncollectiveinvesting.com/401k)
    - [401(k) Comparison Tool](https://www.carboncollectiveinvesting.com/401k/plan-comparison-tool)
- Individuals 
    - [FAQ](https://www.carboncollective.co/en/knowledge/faqs)
- [ETF](https://www.carboncollectivefunds.com/)
- Learn 
    - [Sustainable Investing](https://www.carboncollective.co/sustainable-investing)
    - [Investing Basics](https://www.carboncollective.co/sustainable-investing/investing-basics)
    - [Blog](https://blog.carboncollective.co/)
    - [Tools](https://tools.carboncollective.co/calculator/)
- Log in 
    - [Carbon Collective](https://app.carboncollective.co)
    - [Altruist](https://app.altruist.com)

[Talk to a human](https://ask.carboncollective.co/f4o5dylkg)

[Sign up](https://app.carboncollective.co/sign-up)

[Log In](http://app.carboncollective.co/)

[![Carbon collective](https://www.carboncollectiveinvesting.com/hubfs/raw_assets/public/CarbonCollective_August2021%20copy/images/carbon-collective-green-investing-logo.53b28bee.svg "Carbon collective")](https://www.carboncollectiveinvesting.com/)

- About
- Employers 
    - [Sustainable 401(k)](https://www.carboncollectiveinvesting.com/401k)
    - [401(k) Comparison Tool](https://www.carboncollectiveinvesting.com/401k/plan-comparison-tool)
- Individuals 
    - [FAQ](https://www.carboncollective.co/en/knowledge/faqs)
- [ETF](https://www.carboncollectivefunds.com/)
- Learn 
    - [Sustainable Investing](https://www.carboncollective.co/sustainable-investing)
    - [Investing Basics](https://www.carboncollective.co/sustainable-investing/investing-basics)
    - [Blog](https://blog.carboncollective.co/)
    - [Tools](https://tools.carboncollective.co/calculator/)
- Log in 
    - [Carbon Collective](https://app.carboncollective.co)
    - [Altruist](https://app.altruist.com)

[Talk to a human](https://ask.carboncollective.co/f4o5dylkg)

[Sign up](https://app.carboncollective.co/sign-up)

[Log In](http://app.carboncollective.co/)

**[Home](https://www.carboncollectiveinvesting.com/) > [Sustainable Investing](https://www.carboncollectiveinvesting.com/sustainable-investing) >** 403(b) Plan

# 403(b) Plan

![](https://www.carboncollectiveinvesting.com/hubfs/Brooke%20Tomasetti.png)

 Written by Brooke Tomasetti  |  Reviewed by [Subject Matter Experts](https://www.carboncollectiveinvesting.com/subject-matter-experts)

Updated on October 1, 2024

 Fact Checked

 Why Trust Carbon Collective?

### Table of Contents

## **What Is a 403(b) Plan?**

A 403(b) plan is a retirement savings plan offered by public schools and certain nonprofit organizations. 403(b) plans are also known as tax-sheltered annuity plans or TSA plans.

This plan, similar to the more well-known [401(k) plan](https://www.carboncollectiveinvesting.com/sustainable-investing/401k-plan), allows members to save for retirement through payroll deductions while receiving tax benefits. The sponsoring company can also match a portion of the employee's contribution. Use the [401(k) plan comparison tool](https://www.carboncollectiveinvesting.com/401k-plan-comparison-tool), and explore if a [sustainable 401(k)](https://www.carboncollectiveinvesting.com/401k) plan is a better fit for your company. 

## **How the Plan Works**

With a 403(b) plan, employees can choose to have a portion of their paycheck deducted and placed into the account. The money is then invested and allowed to grow tax-deferred. 

This means taxes are not paid on the money until it is withdrawn from the report, typically at retirement.

The 403(b) plan has the same annual contribution limits as 401(k) plans. For the tax year 2022, the maximum contribution is $20,500. In 2023, the contribution limit is $22,500.

The proposal also includes a $6,500 catch-up payment for anyone over 50 in 2022, which increased to $7,500 in 2023. 

Employee and employer contributions combined are restricted to the lesser of $61,000 in 2022 ($66,000 in 2023), or 100% of the employee's most recent yearly earnings. 

Participants must achieve the age of 59 1/2 before withdrawing money or face an early withdrawal penalty.

## **403(b) vs 401(k)**

In many aspects, 403(b) plans are comparable to 401(k) plans. Both retirement savings programs provide tax advantages and allow employees to contribute through payroll deductions.

The primary distinction is that 403(b) plans are exclusively offered to workers of public schools and select tax-exempt organizations. On the other hand, employees at for-profit businesses have access to 401(k) plans.

## **Eligibility**

The following are the individuals to be eligible to participate in a 403(b) plan.

- Employees of [tax-exempt organizations](https://www.irs.gov/charities-non-profits/charitable-organizations/exemption-requirements-501c3-organizations) are described in Section 501(c)(3) of the Internal Revenue Code;
- Employees of public education systems;
- Church personnel;
- Employees of Indian tribal governments' public school systems;
- Ministers working for Code Section 501(c)(3) organizations;
- Self-employed preachers who are classified as employees of a qualified tax-exempt organization; and
- Ministers (chaplains) who satisfy both of the following criteria:

 

They work for organizations that are not tax-exempt under Code Section 501(c)(3), and

In their day-to-day professional obligations to their employers, they act as ministers.

## **403(b) Plan Features**

The 403(b) plan has the following features:

### **Contribution**

Payroll deductions allow employees to contribute to their 403(b) plans. The amount that can be contributed is subject to yearly IRS limitations. The maximum contribution for the tax year 2022 is $20,500 ($22,500 in 2023).

The proposal also includes a $6,500 catch-up payment for anyone over 50 in 2022, which increases to $7,500 in 2023.

Employee and employer contributions combined are restricted to the lesser of $66,000 in 2023 ($61,000 in 2022), or 100% of the employee's most recent yearly earnings.

### **Plan Investment**

[Assets](https://www.carboncollectiveinvesting.com/sustainable-investing/asset-accounts) in a 403(b) plan can be invested in any of the following asset classes:

- an [annuity](https://www.carboncollectiveinvesting.com/sustainable-investing/annuity) contract offered by an insurance provider;
- a mutual fund-invested custodial account;
- a retirement income plan established for church personnel

### **Loans and Distributions**

A 403(b) plan allows loans. If approved, employees may get a loan to the amount and in the manner permitted by the plan.

Hardship distributions are also permitted but not required in a 403(b) plan. Participants may seek a hardship distribution to the extent and in the manner permitted by the plan.

## **Advantages of 403(b) Plans**

The 403(b) plan offers the following advantages:

- Employees can contribute to their 403(b) plans through payroll deductions.
- The 403(b) plan has the same annual contribution limits as 401(k) plans. For the tax year 2022, the maximum contribution is $20,500. In 2023, the limit is $22,500.
- The proposal also includes a $6,500 catch-up payment for anyone over 50 in 2022 and $7,500 in 2023.
- 403(b) plan assets can be invested in various investment options, including annuity contracts, mutual fund-invested custodial accounts, and retirement income plans.
- 403(b) plans offer the same tax benefits like 401(k) plans. Contributions are made with pre-tax dollars and grow tax-deferred. Withdrawals are taxed as ordinary income.

## **Disadvantages of 403(b) Plans**

The 403(b) plan offers the following disadvantages:

- 403(b) plans are only available to public school employees and employees of certain tax-exempt organizations. Employees of for-profit companies are not eligible to participate in a 403(b) plan.
- 403(b) plans are subject to the same rules and regulations as 401(k) plans. This can make them difficult to administer and maintain.
- 403(b) plans often have high fees, affecting returns.

 

![Advantages_and_Disadvantages_of_403(b)_Plans](https://www.carboncollectiveinvesting.com/hs-fs/hubfs/Advantages_and_Disadvantages_of_403(b)_Plans.png?width=1642&height=1080&name=Advantages_and_Disadvantages_of_403(b)_Plans.png)

## **Final Thoughts**

The 403(b) plan is a tax-advantaged retirement savings plan available to employees of public schools and specific tax-exempt organizations. 403(b) plans have the same contribution limits as 401(k) plans and offer the same tax benefits.

It would help if you kept in mind that 403(b) plans are subject to the same rules and regulations as 401(k) plans, making them difficult to administer and maintain. Additionally, 403(b) plans often have high fees, which can eat returns.

It would help to consider your unique financial situation and investment goals when contributing to a 403(b) or another retirement savings plan.

## **FAQs**

### 1. What is a 403(b) plan?

This plan is a tax-advantaged retirement savings plan available to employees of public schools and specific tax-exempt organizations. 403(b) plans have the same contribution limits as 401(k) plans and offer the same tax benefits.

### 2. How much can I contribute to a 403(b) plan?

For the tax year 2022, the maximum contribution limit is $20,500. Employees over 50 can make a catch-up contribution of $6,500. In 2023, the contribution limit is $22,500 and the catch-up contribution is $7,500.

### 3. What are the advantages of 403(b) plans?

The advantages of 403(b) plans include the following: employees can contribute to their 403(b) plans through payroll deductions; the 403(b) plan has the same annual contribution limits as 401(k) plans; 403(b) plan assets can be invested in a wide variety of investment options; 403(b) programs offer the same tax benefits like 401(k) plans.

### 4. What are the disadvantages of 403(b) plans?

The main disadvantages of 403(b) plans are that they are subject to the same rules and regulations as 401(k) plans, making them difficult to administer and maintain. Additionally, 403(b) plans often have high fees, which can eat returns.

### 5. Who is eligible to participate in a 403(b) plan?

Employees of public schools and certain tax-exempt organizations are eligible to participate in a 403(b) plan.

 

### Related Topics

- [Sustainable 401(k) Plan](https://www.carboncollective.co/401k)
- [Sustainable Investing](https://www.carboncollective.co/sustainable-investing/)
- [Investing Basics](https://www.carboncollective.co/sustainable-investing/investing-basics)
- [Retirement Glossary](https://www.carboncollective.co/sustainable-investing/retirement-planning-glossary)
- [Best Retirement Plans](https://www.carboncollective.co/sustainable-investing/the-10-best-retirement-plans)
- [Wealth Manager Vs Financial Advisor](https://www.carboncollective.co/sustainable-investing/wealth-manager-vs.-financial-advisor)

![Attend Our Next Webinar](https://www.carboncollectiveinvesting.com/hubfs/carbon-collective-green-investing-icon-webinar.12af7b6e.svg)

### Attend Our Next Webinar

Join our next Sustainable Investing 101 webinar, get our favorite DIY options, and walk through how we build our portfolios.

[Watch Now](https://www.carboncollective.co/sustainable-investing-webinar-green-retirement-month)

![Get Our Newsletter](https://www.carboncollectiveinvesting.com/hubfs/carbon-collective-green-investing-icon-demo.6ed28722.svg)

### Get Our Newsletter

Go a level deeper with us and investigate the potential impacts of climate change on investments like your retirement account.

Join Newsletter

![close-typeform](data:image/gif;base64,R0lGODlhEQARAIAAAODn7P///yH5BAEHAAEALAAAAAARABEAAAIqBIKpab3v3EMyVHWtWZluf0za0XFNKDJfCq5i5JpomdUxqKLQVmInqyoAADs=)

![Talk To A Human](https://www.carboncollectiveinvesting.com/hubfs/carbon-collective-green-investing-icon-chat.49d48c5b.svg)

### Talk To A Human

Joining a new investment service can be intimidating. We’re here for you. Click below to email us a question or book a quick call.

[Ask a Question](https://ask.carboncollective.co/f70pooobq)

Topics

## Sustainable Investing Topics

View our list of some topics below.

 See More

- Portfolios 
    - [Performance](https://www.carboncollectiveinvesting.com/returns)
- About 
    - [Sustainable 401(k)](https://www.carboncollectiveinvesting.com/401k)
- Learn 
    - [FAQ](https://www.carboncollective.co/en/knowledge/faqs)
    - [Sustainable Investing](https://www.carboncollective.co/sustainable-investing)
    - [Investing Basics](https://www.carboncollective.co/sustainable-investing/investing-basics)
- Contact 
    - [Contact us](mailto:hello@carboncollective.co)
    - [Legal](https://www.carboncollective.co/legal)
    - [Privacy Policy](https://www.carboncollectiveinvesting.com/hubfs/2022-11%20Carbon%20Collective%20Privacy%20Policy.pdf)
- [Back to top](https://www.carboncollectiveinvesting.com/sustainable-investing/403b-plan#top-of-page)

DISCLAIMERS:

Advisory services provided by Carbon Collective Investment LLC (“Carbon Collective"), an SEC-registered investment adviser. A copy of Carbon Collective's current written disclosure statement discussing Carbon Collective’s business operations, services, and fees is available at the SEC’s investment adviser public information website – [www.adviserinfo.sec.gov](https://adviserinfo.sec.gov/firm/summary/310129) or [our legal documents here](https://blog.carboncollective.co/legal-documents/).

The articles and research support materials available on this site are educational and are not intended to be investment or tax advice. Carbon Collective does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Carbon Collective’s web site or incorporated herein, and takes no responsibility therefor. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

Investments in securities: Not FDIC Insured • No Bank Guarantee • May Lose Value. Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. Before investing, consider your investment objectives and Carbon Collective's charges and expenses. Carbon Collective's internet-based advisory services are designed to assist clients in achieving discrete financial goals. They are not intended to provide comprehensive tax advice or financial planning with respect to every aspect of a client's financial situation and do not incorporate specific investments that clients hold elsewhere. For more details, see our Form CRS, Form ADV Part 2 and other disclosures. Past performance does not guarantee future results, and the likelihood of investment outcomes are hypothetical in nature. Not an offer, solicitation of an offer, or advice to buy or sell securities in jurisdictions where Carbon Collective is not registered.

© 2026 Carbon Collective Corporation. All rights reserved.

×

#### Fact Checked

Carbon Collective partners with financial and climate experts to ensure the accuracy of our content.

Our team of reviewers are established professionals with years of experience in areas of personal finance and climate.

They have contributed to top tier financial publications, such as Reuters, Axios, Ag Funder News, Bloomberg, Marketwatch, Yahoo! Finance, and many others.

This team of experts helps Carbon Collective maintain the highest level of accuracy and professionalism possible.

×

#### Why Trust Carbon Collective

 Carbon Collective is the first online investment advisor 100% focused on solving climate change. We believe that sustainable investing is not just an important climate solution, but a smart way to invest.

 We follow ethical journalism practices, which includes presenting unbiased information and citing reliable, attributed resources. Much of our research comes from leading organizations in the climate space, such as Project Drawdown and the International Energy Agency (IEA).

 Our goal is to deliver the most understandable and comprehensive explanations of climate and finance topics.

 Our writing and editorial staff are a team of experts holding advanced financial designations and have written for most major financial media publications. Our work has been directly cited by organizations including MarketWatch, Bloomberg, Axios, TechCrunch, Forbes, NerdWallet, GreenBiz, Reuters, and many others.

 We strive to empower readers with the most factual and reliable climate finance information possible to help them make informed decisions. 

 }

```json
{
  "@context" : "https://schema.org",
  "@type" : "Organization",
  "alternateName" : "Carbon Collective",
  "contactPoint" : {
    "@type" : "ContactPoint",
    "areaServed" : "US",
    "availableLanguage" : "en",
    "contactType" : "customer service",
    "telephone" : "(650) 868-2697"
  },
  "logo" : "https://www.carboncollective.co/hubfs/CarbonCollectiveLogo.png",
  "name" : "Carbon Collective Investing LLC",
  "sameAs" : [ "https://www.facebook.com/carboncollectiveinvesting/", "https://twitter.com/carbncollective", "https://www.instagram.com/carbon.collective/", "https://www.youtube.com/channel/UC769Y-F-L_B37kyQfdpvyXA", "https://www.linkedin.com/company/carbon-collective/", "https://www.crunchbase.com/organization/carbon-collective", "https://adviserinfo.sec.gov/firm/summary/310129", "https://www.wikidata.org/wiki/Q110243690" ],
  "url" : "https://www.carboncollective.co/"
}
```

```json
{
    "@context": "https://schema.org",
    "@type": "BlogPosting",
    "mainEntityOfPage": {
      "@type": "WebPage",
      "@id": "https://www.carboncollectiveinvesting.com/sustainable-investing/403b-plan"
    },
    "headline": "403(b) Plan | Meaning, Features, Advantages, & Disadvantages",
    "description": " In this comprehensive guide, learn everything you need to know about 403(b) retirement plans, their definition, features, advantages, and disadvantages.
",
    "image": "https://20345524.fs1.hubspotusercontent-na1.net/hubfs/20345524/403%28b%29_Plan_-_FI.png",  
    "author": {
      "@type": "Person",
      "name": "https://20345524.fs1.hubspotusercontent-na1.net/hubfs/20345524/Brooke%20Tomasetti.png",
      "url": "https://www.carboncollectiveinvesting.com/sustainable-investing/author/brooke-tomasetti"
    },  
    "publisher": {
      "@type": "Organization",
      "name": "Carbon Collective",
      "logo": {
        "@type": "ImageObject",
        "url": "https://www.carboncollective.co/hubfs/CarbonCollectiveLogo.png"
      }
    },
    "datePublished": "2022-12-15",
    "dateModified": "2024-10-01"
  }
```