Types

• You can have a traditional 403b plan, a Roth 403b plan or both types of 403b plans. Traditional 403b plans allow contributions to be made with pretax dollars, which means the contributions are not taxed as income. Only when you take withdrawals will any of the money in the account be taxed. Contributions to Roth 403b plans count as taxable income, but you can take tax-free withdrawals from your account at retirement.
  
  

Considerations

• Investments in 403b plans are only permitted to be in mutual funds and annuities. Mutual funds are professionally managed investments in a collection of stocks. For example, one mutual fund may invest in large-cap stocks while another may focus on international companies. The IRS permits both fixed-rate and variable-rate annuities to be part of 403b accounts.
  
  

Time Frame

• Money put into a 403b plan cannot come out as a qualified withdrawal until you turn 59 1/2 years old. Prior to that age, you can only withdraw money from the account under limited circumstances including leaving your job, having a severe financial hardship or suffering a permanent disability. If you leave your job before turning 55 or take a financial hardship distributions, you will have to pay a 10 percent early withdrawal penalty.
  
  

Considerations

• The 403b plan can accept employer contributions on your behalf. Unlike 401k plans, you are fully vested in any employer contribution made to the account on your behalf. This means that no matter how long you work for the company, you will be able to keep the employer contributions when you leave. In addition, 403b plans are tax-sheltered accounts, meaning that you do not have to pay taxes on any of the returns on the money in the account until you take withdrawals from the account.
  
  

Size

• Contribution limits for 403b plans are the same limits as on 401k plans. These limits adjust annually for inflation and differ depending on whether you are under age 50 or are age 50 or older. As of 2010, the contribution limit equals $16,500 if you are under 50 and $22,000 if you are 50 or older. However, you cannot contribute more than your total earned income. For example, if you have only $10,000 in earned income, you would not be able to contribute more than $10,000.