Can You Have a Roth 403(b) and a Traditional 403(b) at the Same Time? Absolutely!

Hey there, retirement savers! If you’re working for a nonprofit organization, university, or in the education sector, you’ve probably heard about 403(b) plans. But here’s a question I get asked all the time: can you have both a Roth 403(b) and a traditional 403(b) simultaneously?

“Yes, you can!” is the short answer. In fact, it might be one of the best things you ever do in retirement.

I’ve been helping folks navigate the complicated world of retirement accounts for years, and I’m excited to break down everything you need to know about having both types of 403(b) accounts. Let’s dive right in!

Understanding the Difference Between Traditional and Roth 403(b) Plans

Before we get into the nitty-gritty, let’s quickly recap what makes these two account types different:

Traditional 403(b)

• Funded with pre-tax dollars
• Reduces your taxable income now
• Grows tax-deferred until retirement
• Withdrawals in retirement are taxed as ordinary income
• Often includes employer matching contributions

Roth 403(b)

• Funded with after-tax dollars
• No immediate tax break on contributions
• Grows tax-free
• Withdrawals in retirement are completely tax-free (including earnings!)
• Must hold the account for at least five years and be 59½ to qualify for tax-free withdrawals

The biggest difference really comes down to when you pay taxes – now or later.

Benefits of Having Both Types of 403(b) Accounts

Why would someone want both? Well, there are several compelling reasons:

1. Tax Diversification

Having both types gives you serious tax flexibility in retirement. Think of it as not putting all your tax eggs in one basket!

Let’s say you’re 65 and need to make a large withdrawal for a dream vacation. If you take it all from your traditional 403(b), that big withdrawal might push you into a higher tax bracket. But if you have both accounts, you could take some money from each, potentially keeping yourself in a lower tax bracket.

2. Flexibility for Different Financial Goals

Maybe you’ve got both long-term and shorter-term goals. A traditional 403(b) might make sense for your distant retirement needs, while the Roth portion could be useful for goals that are closer on the horizon.

3. Protection Against Future Tax Rate Changes

None of us has a crystal ball to predict future tax rates. By having both account types, you’re essentially hedging your bets against future tax scenarios.

As my neighbor who retired last year told me, “I’m so glad I split my contributions between both types. Now I can pull from whichever account makes the most tax sense each year!”

Contribution Limits When You Have Both Accounts

Here’s where people often get confused. The contribution limit applies to your TOTAL 403(b) contributions, not to each account separately.

For 2024, here’s what you’re looking at:

• $23,000 for employees under 50
• $30,500 for employees age 50+ (includes $7,500 catch-up contribution)

For 2025, the limits increase slightly:

• $23,500 for employees under 50
• $31,000 for workers 50-59 and 64+
• $34,250 for workers 60-63 (thanks to new Secure Act 2.0 rules)

This means if you contribute $15,000 to your traditional 403(b), you could only put $8,000 in your Roth 403(b) that same year if you’re under 50.

Special 15-Year Rule

If you’ve worked for the same company for at least 15 years, you may be able to contribute an extra $3,000 per year (up to $15,000 per lifetime), even if you’re under 50! This is a benefit that not many people know about!

How Employer Matching Works With Dual Accounts

This is very important to know: if YOU choose to put money into a Roth 403(b), the money that your employer matches will ALWAYS go into a traditional 403(b) account.

Why? Because employers can only make pre-tax contributions. This means if you’re getting matching funds, you’ll automatically have both types of accounts!

As an example, Sophia puts $3,600 a year into her traditional 403(b), while Fred, one of her coworkers, does the same for his Roth 403(b). They have both made $284,609 over the last 10 years with returns that are the same. Sophia will have to pay taxes when she takes out her money, but Fred will not have to pay any taxes at all!

How to Decide Where to Put Your Money

I’ve found that this decision really comes down to a few key factors:

1. Current vs. Future Tax Rates

If you expect to be in a higher tax bracket in retirement than you are now, Roth contributions might make more sense. If you think your tax rate will drop in retirement, traditional could be the better choice.

2. Your Current Financial Situation

If you’re struggling to max out your contributions, the immediate tax savings from traditional contributions might help you contribute more overall.

3. Your Time Horizon

Generally, the longer you have until retirement, the more attractive Roth accounts become because you’ll have more time for that tax-free growth to compound.

4. Your Other Retirement Accounts

If you’ve already got significant pre-tax savings elsewhere, adding some Roth contributions might help balance your tax exposure.

Can You Have a 403(b) AND an IRA?

Yes, absolutely! You can contribute to both an employer-sponsored 403(b) plan AND an individual retirement account (IRA) in the same year.

This is actually a great strategy for maximizing your retirement savings. A common approach I recommend is:

1. Contribute enough to your 403(b) to get your full employer match
2. Max out a Roth IRA if you’re eligible
3. Come back and put more into your 403(b) if you can afford it

If your income is too high for direct Roth IRA contributions, you might want to look into the “backdoor Roth IRA” strategy. Just be careful about having traditional IRA balances that could complicate this process due to pro-rata rules.

Real-World Example: How This Works

Let me share a quick real-life scenario:

My friend Sarah works at a university and makes $75,000 per year. Her employer contributes 6% automatically to her 403(b) and will match an additional 3% if she contributes 2% herself.

Sarah decided to:

• Put 2% in her traditional 403(b) to get the full employer match
• Put an additional 8% in her Roth 403(b)
• Also max out her Roth IRA separately

This way, she gets:

• The full employer match (total 11% of her salary in traditional 403(b))
• Tax-free growth potential on her Roth 403(b) and Roth IRA contributions
• Tax diversification for retirement

Her total retirement savings rate is now over 20% of her income – impressive!

Important Considerations and Potential Pitfalls

Limited Investment Options

One drawback of 403(b) plans is that your investment choices are typically limited to annuity contracts from insurance companies and mutual funds. This isn’t necessarily a bad thing, but you might not have access to the wide range of investment options available in other accounts.

RMD Rules

Good news! As of 2024, Roth 403(b) accounts are no longer subject to required minimum distributions (RMDs). However, traditional 403(b) accounts still require RMDs starting at age 73.

If you want to avoid taking RMDs from your Roth 403(b), you might consider rolling it over to a Roth IRA when you retire or leave your employer.

Impact on Take-Home Pay

Remember that Roth contributions don’t reduce your current taxable income. This means your take-home pay will be lower than if you made an equivalent pre-tax contribution to a traditional 403(b).

How to Set Up Both Types of 403(b) Accounts

If your employer offers both options, setting up dual accounts is usually pretty straightforward:

1. Contact your HR department or benefits coordinator
2. Fill out the appropriate enrollment forms
3. Specify how much you want to contribute to each account type
4. Select your investments for each account

Many employers’ plans let you easily adjust your contribution allocation between traditional and Roth through their online portal.

Final Thoughts: Is Having Both Worth It?

In my experience, having both types of 403(b) accounts is almost always beneficial. The tax flexibility and diversification you gain are incredibly valuable, especially as your financial situation evolves throughout your career and retirement.

I’ve seen too many retirees regret putting all their savings in one type of account. Those with a mix of pre-tax and Roth savings consistently have more options and flexibility.

Remember, retirement planning isn’t a one-size-fits-all proposition. Your strategy should reflect your unique situation, goals, and risk tolerance.

So, can you have a Roth 403(b) AND a traditional 403(b)? Not only can you, but for many people, you probably should!

Have you started contributing to both types of accounts? I’d love to hear about your experience in the comments below!

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Disclaimer: This article is for informational purposes only and is not intended as tax, legal, or financial advice. Always consult with a qualified professional regarding your specific situation.