A 403(b) is an employer-sponsored retirement account offered by public schools and 501(c)(3) tax-exempt organizations. When you take out a 403(b), you can contribute some of your salary toward your retirement savings. Your employer may contribute to the plan as well.
Like a 401(k), there are two different types of 403(b) plans you can choose from. The main difference between the two plans is in how they are taxed:
A traditional 403(b) plan is funded with pre-tax dollars, and your money grows on a tax-deferred basis. So instead of paying taxes now, you’ll be taxed on your withdrawals during retirement. A Roth 403(b) plan is funded with after-tax dollars, so any money you contribute will grow tax-free. That means you won’t pay any taxes on withdrawals you take out during retirement, and that’s why so many people believe utilizing the Roth, whether it’s an IRA or in a 403(b), is such a great deal. However, this only applies to the contributions you make—if your employer matches your contribution, that money is tax-deferred. That means you’ll have to pay taxes on the money your employer contributes when you’re in retirement.
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