What is a 403(b) Plan? Your guide to compliance


403b is a retirement plan meant for individuals in a certain profession.

If you are employed as a doctor, teacher, researcher, librarian, school administrator, nurse, professor, school personnel or minister, you are eligible to have a 403b retirement plan.

In addition, even people employed in tax-free organizations can opt for 403(b) retirement plan.

People who have 403b retirement plans should be aware that they cannot invest in individual stocks through their plan.

Instead they have the following choices open to them:

1. Annuity or variable annuity contracts with insurance companies

2. Custodial account for mutual funds. This is known as 403b(7)

3. Retirement income accounts for churches

If you have a 403b plan, you can set aside pre-tax money through salary deduction after coming to an agreement with your employer.

Watch this video to learn about 7 important benefits 403b plans provide


This deducted amount is then transferred to a financial institution chosen by the employer and the money grows tax-deferred until retirement.

On withdrawal of the money at retirement, it is taxed like ordinary income.

In addition, there are penalties in place for early withdrawal.

If you withdraw money before you reach the age of 59 1/2 years, you will have to pay 10 percent early withdrawal penalty along with federal income tax on the amount.

403(b) Plan Fundamentals: Your guide to compliance >>