Putting together a plan to save for retirement can be a bit confusing with all the options that are available. In addition to employer-sponsored plans, there are individual plans, which further complicates the process of figuring out what’s right for you.
Two popular choices are Roth IRA and Roth 403(b) plans. The main benefit of these two plans is that they allow you to contribute after-tax dollars, so you don’t have to pay taxes when you withdraw your money. These are the basics you need to know about Roth 403b vs Roth IRA plans if you’re planning for retirement.
Roth 403(b)
A Roth 403(b) plan is an employer-sponsored plan that’s offered by public schools and some 501(c)(3) tax-exempt organizations. 403(b) plans are also known as tax-sheltered annuity or TSA plans.
With a traditional 403(b) plan, you contribute pre-tax dollars, and your withdrawals are taxed when you retire. With a Roth 403(b) plan, you contribute after-tax dollars, and you can make tax-free withdrawals.
It’s important to note that you’re only eligible for a Roth 403(b) plan if you’re an employee of a public school or a qualified tax-exempt organization. Otherwise, employers typically offer a 401(k) plan.
Roth IRA
A Roth IRA is a type of individual retirement account that you can open without an employer. You can set up a Roth IRA at most financial institutions and choose how much you want to contribute.
Unlike employer-sponsored retirement plans, you’re the only one contributing to your Roth IRA. That means you also have a lower contribution limit — $7,000 in 2025 or $8,000 if you’re 50 or older.
There are still some restrictions on Roth IRAs, even though you don’t need to be a public school or nonprofit employee. If your modified adjusted gross income (MAGI) is above a certain amount, you’ll be limited in how much you can contribute, which we’ll go into more detail about below.
Tax implications of Roth 403(b) vs. Roth IRA
With a traditional retirement account, you have to pay taxes when you make withdrawals after you retire. Since you’re contributing after-tax dollars to your Roth 403b vs Roth IRA, you don’t have to pay taxes when you make withdrawals. You also can’t deduct your contributions on your taxes. The tradeoff is that your money can grow tax-free since you’ve already paid your taxes on it.
Can you have both types of retirement accounts?
If you can afford to contribute to a Roth 403b and a Roth IRA, you can have both accounts at the same time. There are no restrictions when it comes to opening an IRA when you already have a retirement plan.
Keep in mind that there are income limits for Roth IRAs. Your contribution limit may be reduced if you’re above a certain income threshold. If your income exceeds a certain level, your Roth IRA contribution limit can be zero.
Advantages of having both Roth 403b and Roth IRA
Opening a 403(b) and Roth IRA allows you to contribute more each year. You can contribute up to your 403(b) contribution limit and your Roth IRA limit, allowing you to maximize your retirement savings and plan for the future.
Having multiple retirement accounts helps you diversify your retirement strategy. In turn, that helps you enhance financial security since you’re not relying entirely on one retirement plan or account. Source