What Is a 403(b) Plan?

Named for the section of the IRS Code that created it, a 403(b) is a retirement savings plan offered generally to employees of public schools, tax-exempt organizations, and certain clergy. Like a 457(b) plan, such as Ohio Deferred Compensation, a 403(b) allows employees to set aside a portion of their salary for retirement before state and federal income taxes are deducted.

Employers with 403(b) plans can choose to match contributions, and employees can decide how to invest their savings—typically, in mutual funds, annuities based on stocks, bonds, money market funds, or a mix thereof. Unlike 457 plans, there is a penalty for early withdrawals from 403(b) plans prior to age 59½.