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What is the Difference Between a 403b and IRA?

A.E. Freeman
A.E. Freeman

There are several differences between 403b and IRA plans in the United States. IRA stands for individual retirement account, meaning it is a plan a person can open and maintain herself. In order to contribute to a 403b plan, a person must work for a 501(c)(3) organization in the United States or work in the public school system, for a hospital, or as a minister.

The amount of money that can be deposited into a 403b and IRA differs, as do income requirements. A person has to earn an income less than a certain amount each year in order to place money in an IRA. As of 2010, a person must make less than $105,000 per year if single or less than $167,000 if married in order to place money in an IRA in the United States. A person is also only able to place $5,000 in the account each year. If a person has a 403b through his employer, he would be able to contribute up to $16,500 or 100 percent of his income. An employee more than age 50 is allowed to contribute an extra $5,500 per year as of 2010 in order to catch up.

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Another difference between a 403b and IRA is that, in a 403b, the employer may also make contributions to an employee's plan, up to $49,000 or the total amount of an employee's income, whichever is less. The employer's contributions to a 403b plan are also determined by how many employees participate in the plan and the total sum of their income. An employer may also choose to not contribute to employees' accounts; this is known as a Non-Title 1 403b plan.

Both 403b and IRA plans do share some similarities. A person can choose to contribute to either a traditional or Roth 403b and IRA plan or to both. Money contributed to a traditional plan is put into the account before tax, while money contributed to a Roth IRA or 403b is after tax. When the money is taken out of a traditional 403b and IRA, the tax is due. Tax is never due on a Roth account. There is also usually an early withdrawal penalty if a person takes money from her 403b or IRA before age 59 and a half. She is also required to start taking distributions from either account by age 70 and a half, unless it is a Roth IRA.

Unlike a Roth IRA, a person does not need to meet an income requirement in order to contribute to a Roth 403b. An employer cannot contribute to a Roth 403b, unlike a traditional 403b. A person can have contributions automatically deducted from his paycheck for both a traditional and a Roth 403b.

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