What Is the Difference Between an IRA Account and a 403b Plan?

By Blake Guthrie

  • Overview

    IRA stands for individual retirement account. 403b gets its name from its listing in the U.S. tax code that spells out its use in section 403(b), which itself is a subsection of section 501(c)(3). The more well-known employer-sponsored retirement savings plan, 401(k), also gets its name from the same tax code.
    What Is the Difference Between an IRA Account and a 403b Plan?
    What Is the Difference Between an IRA Account and a 403b Plan?
  • Features

    The main difference between an IRA and a 403b plan is that the IRA is individually maintained and the 403b is administered by an employer on behalf of an employee. To qualify for a 403b plan, the employee must be employed by a public school or a tax-exempt organization. Ministers working for tax-exempt churches are an example of the type of person qualified for a 403b plan. A self-employed minister can not set up his own 403b account. Any individual with sufficient funds can open an IRA.
  • Types

    There is only one type of 403b plan, but there are many types of IRAs. The most common IRAs are the Traditional and the Roth. Other types are the SEP IRA, SIMPLE IRA and Education IRA. The 403b is often referred to as a TSA plan, meaning tax-sheltered annuity. TSA is a more generic term and not specific to the 403b.

  • Benefits

    The benefits of the 403b and IRA accounts include the deferred tax savings and higher interest that is paid out to the account holder in retirement. It is more beneficial for individuals to save money for retirement through an IRA or a 403b rather than a traditional savings account because, in the long run, these accounts pay out more at a later date.
  • Contributions

    The annual limits to how much an individual can contribute to an IRA are $5,000 for persons under 50 and $6,000 for persons 50 and over. The contribution limits can be higher for persons who qualify for a 403b plan, but they must complete an IRS worksheet to determine exactly how much can be contributed annually from their salary by an employer.
  • Penalties

    If you make an early withdrawal from a 403b, the penalty fee could be up to half of the amount being withdrawn. Withdrawing money from an IRA prior to age 60 also incurs heavy penalties, but the account holder must begin taking distributions from the account at age 70.
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