403(b) vs. Roth IRA: How do they compare?

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 Can’t contribute above a certain income Relatively low contribution limit Penalties on early withdrawals of earnings
		Learn more about Roth IRAs

403(b) vs. Roth IRA: Which one’s better?

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.

Must read: Ready to get started? See our top picks for the best Roth IRA accounts

The similarities between 403(b)s and Roth IRAs

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.

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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.