403(b) Plans

Since 1958--20 years before the enactment of section 401(k)--section 403(b) of the Internal Revenue Code has allowed certain nonprofit organizations to set up salary reduction plans for their employees.⁽¹⁾ Those plans, also known as tax-sheltered annuities, or TSAs, are subject to the same limits on employee contributions that are placed on 401(k) plans. If an employee has both types of plan, the limits apply to the sum of 401(k) and 403(b) contributions. Four other features distinguish 403(b) plans from 401(k)s:

• Employees with extensive years of service have always been allowed to make limited "catch-up" contributions in excess of the general dollar limit;
  
  
• Investment options are limited to annuities and mutual funds;
  
  
• Employees' contributions are not subject to nondiscrimination rules (although employers' contributions are); and
  
  
• The rules for top-heavy plans do not apply.