Advantages & Disadvantages of a 403B

Employees who work for hospitals, government agencies and schools often have access to 403b plans. These plans allow workers to put money aside out of their paychecks and use those funds to save for retirement. A 403b plan provides immediate tax savings as well as long-term tax-deferred growth in the years and decades leading up to retirement.

Tax Savings

Investing in a 403b plan provides immediate tax savings, since the money you set aside in the plan comes out of your paycheck on a pre-tax basis. Every dollar you invest in a 403b is deducted from your federal taxable wages, and that in turn lowers your tax liability. That means that participating in your company's 403b plan might not lower the amount of your paycheck as much as you fear. The tax advantages inherent in the 403b plan makes it one of the most powerful tools for retirement savings and tax savings.


A 403b plan is one of the simplest and easiest to use retirement plans. Some employers now enroll their new hires in the 403b plan automatically, so you might not have to do anything to participate. Even if your firm does not use automatic enrollment, signing up is simply a matter of filling out a form. Once you sign up, the money for the 403b plan comes straight out of your paycheck with no further action required on your part.

Employer Match

The presence of an employer match provides a strong incentive for investing in a 403b plan. Many employers match a portion of the money their employees put into their 403b plan, and that represents free money to you. If you make $30,000 a year and your employer matches 50 cents on the dollar up to 6 percent of your earnings, the value of that employer match is a full $900 a year. It would be difficult to get that kind of return anywhere else.

Withdraw Restrictions

The fact that a 403b plan is designed to provide for a comfortable retirement can be seen as both an advantage and a disadvantage. The money you put into a 403b plan is allowed to grow on a tax-deferred basis until you retire, but that means you cannot easily get at that money before you reach retirement age. If you withdraw money from a 403b plan before you are 59 1/2, you could face significant tax penalties. If you have short-term goals as well as long-term retirement goals, you might want to split your investments between your 403b plan and an account you fund with after-tax dollars.