Contributions to a traditional 403(b) account are tax-deferred until they are withdrawn, and because they are deducted from your pay, they can lower your taxable income for the year.
If your employer offers it, you may be able to contribute to a Roth 403(b) account. Contributions to Roth accounts are after tax, therefore you will pay income taxes on amounts you contribute (as well as any matching amounts your employer may add) in the year contributions are made. However, Roth accounts are not subject to taxes in the future, and your heirs may inherit tax-free as well as long as the account has been in place for 5 years or longer.
Roth accounts are also not subject to RMDs in retirement. Required minimum distributions begin at age 73 on traditional 403(b) accounts.
Funds withdrawn from a 403(b) plan before age 59½ are subject to a 10% tax penalty, although you may avoid the penalty under certain circumstances, such as separating from an employer at age 55 or older, needing to pay a qualified medical expense, or becoming disabled.
