403(b) and 401(k) Glossary: Plan Terms Decoded

The annuity contract variant of a 403(b) plan. Investments are held in annuity contracts issued by insurance companies. Can include variable, fixed, and indexed annuities. This is the type associated with higher fees and surrender charges.

The custodial account variant of a 403(b) plan. Investments are held in mutual funds at a bank or brokerage custodian. No annuity charges, no surrender periods. Vanguard, Fidelity, and Schwab operate these. Functionally similar to a 401(k) in terms of investment structure.

The overall annual contribution limit combining employee deferrals and employer contributions. $70,000 in 2026. Applies per plan (so a dual-plan participant can receive up to $140,000 in combined employer contributions). Indexed to inflation.

An insurance product that can be used as the investment vehicle inside a 403(b)(1) plan. A fixed annuity pays a guaranteed interest rate. A variable annuity invests in sub-accounts that fluctuate with markets. An indexed annuity ties returns to a stock index with some downside protection. All types carry insurance charges that mutual fund accounts do not.

Additional contribution allowed above the standard $23,500 limit for employees meeting specific criteria. Age 50+ catch-up: $7,500. Enhanced 60-63 catch-up (SECURE 2.0): $11,250. 15-year service catch-up (403(b) only): $3,000/year up to $15,000 lifetime.

Employee Retirement Income Security Act of 1974. Federal law setting minimum standards for private employer retirement plans including fiduciary duties, participant rights, disclosure requirements, and enforcement. Private nonprofit 403(b) plans are generally ERISA-covered. Governmental and church plans are exempt.

The annual fee charged by an investment fund, expressed as a percentage of assets. An expense ratio of 0.1% means you pay $100 per year on a $100,000 balance. Index funds typically range from 0.03% to 0.2%. Actively managed funds and annuity sub-accounts can exceed 1%. This is the primary cost difference between low-fee and high-fee plans.

A person or entity legally required to act in your best interest. Plan fiduciaries under ERISA must select prudent investments and monitor plan costs. Insurance agents selling 403(b) annuities are generally not fiduciaries; they are held to a lower suitability standard. Always ask your advisor: 'Are you a fiduciary?'

Annual financial disclosure filed by most ERISA plans with the Department of Labor. Contains plan assets, participant count, contributions, and expenses. Public record. Search at efast.dol.gov. Governmental and church plans are generally not required to file.

Participant fee disclosure document. ERISA plans must provide this annually to all active participants. Lists every investment option with expense ratio, benchmark, historical performance, and any additional charges. If you have not received this in the past year, request it from HR.

Early withdrawal for immediate and heavy financial need before age 59.5. Six IRS-approved reasons: medical expenses, primary residence costs, tuition, funeral expenses, preventing eviction, and disaster repair. SECURE 2.0 simplified self-certification rules. Still subject to income tax and 10% penalty unless an exception applies.

An insurance fee embedded in variable annuity contracts sold inside 403(b)(1) plans. Typically 0.5% to 1.5% of account value annually. Pays for the death benefit and expense guarantees in the annuity. Does not exist in mutual fund-based plans. One of the primary reasons annuity 403(b)s are more expensive.

The historical calculation method for 403(b) contributions before EGTRRA 2001 simplified the rules to align with 401(k) limits. The MAC was complex and employer-calculated. Post-2002, the same straightforward $X limit applies. The 15-year rule is a remnant of the MAC era.

An employer contribution made to a retirement account, typically conditional on the employee making their own contributions. Common formulas: dollar-for-dollar up to 3% of salary, or 50 cents on the dollar up to 6% of salary. Always contribute enough to capture the full employer match.

An option within some 403(b) plans that allows investment in mutual funds alongside (or instead of) annuity products. A critically underused feature. Ask HR: 'Does my plan have a mutual fund window or 403(b)(7) option?' If yes, you may be able to invest in low-cost index funds without leaving the employer plan.

A retirement plan exempt from ERISA requirements. Includes governmental 403(b) plans (state and local government employers) and church plans. Non-ERISA plans have more flexibility in vesting and withdrawal rules but fewer participant protections and disclosure requirements.

Legal disclosure document for an investment fund. Contains expense ratios, investment strategy, risks, and historical performance. Required for all registered funds. Find your plan's fund prospectuses on the provider's website or at SEC EDGAR (sec.gov). The expense ratio is in the 'fees and expenses' table.

Mandatory annual withdrawal from traditional retirement accounts starting at age 73 (SECURE 2.0). The IRS calculates the minimum amount based on account balance and life expectancy. Roth 401(k) and Roth 403(b) accounts are exempt from RMDs during the owner's lifetime (post-2024). Missing an RMD triggers a 25% excise tax.

After-tax contribution treatment. Contributions to a Roth account are made with money you have already paid income tax on. Growth and qualified withdrawals are tax-free. Available in both 403(b) and 401(k) plans as the Roth designation. Same contribution limits as traditional. Generally favoured when you expect to be in a higher tax bracket in retirement.

An exception to the 10% early withdrawal penalty. If you separate from service in the calendar year you turn 55 (50 for qualified public safety employees), you can take distributions from that employer's plan penalty-free. Income tax still applies. Does not work for IRAs. Only applies to the specific employer's plan.

Comprehensive retirement legislation passed in December 2022. Key 403(b) changes: ETF access in 403(b) plans, collective investment trust eligibility, enhanced 60-63 catch-up ($11,250), RMD age raised to 73, Roth employer match option, long-term part-time employee access, and simplified hardship withdrawal rules.

Substantially Equal Periodic Payments. A method for taking early distributions from a retirement account before age 59.5 without the 10% penalty. Must take equal payments for at least 5 years or until age 59.5, whichever is longer. Three IRS-approved calculation methods. Very complex; consult a tax advisor before using.

Plain-English explanation of your retirement plan. Every ERISA plan must provide it free on request. Contains investment options, fee information, vesting schedules, and distribution rules. Essential reading. If your plan will not provide an SPD, that is a red flag.

A penalty charged by annuity contracts if you withdraw or transfer money within the surrender period. Typically 5-8% in year one, declining by about 1% per year. A 7-year surrender schedule means you pay 7% in year one, 6% in year two, etc. Surrender charges are a major reason why annuity 403(b)s are difficult to exit even when fees are high.

Old term for 403(b) plans. Still used in some plan documents and IRS publications. The 403(b) and TDA refer to the same thing. 'Tax-sheltered annuity' (TSA) is another older synonym.

A unique guaranteed fixed annuity offered by TIAA. Provides a minimum guaranteed interest rate (currently around 3%) with no expense ratio. Appropriate as a bond/stable-value substitute. Not the same as a variable annuity; TIAA Traditional has no M&E charges. Key limitation: liquidity restrictions. Withdrawals typically spread over 9 payment periods.

An employer year-end catch-up match for participants who front-loaded their contributions and stopped receiving per-period matches after hitting the contribution limit. Not all plans offer true-up. Ask HR if your plan has it before aggressive front-loading.

The process by which employer contributions become your permanent property. Employee contributions are always 100% vested immediately. Employer matching contributions may vest over time: cliff vesting (0% until a certain year, then 100%) or graded vesting (20% per year over multiple years). Check your plan's vesting schedule before leaving an employer.