A 403(b) is a tax-deferred savings plan for educators, and it’s available through your school district. The 403(b) plan is closely related to a 401(k) plan and allows users to save money for retirement through payroll deductions. The 403(b) savings vehicle is also available for employees of nonprofit or religious groups.

The two types of 403(b) plans available are Traditional 403(b) and Roth 403(b) plans. The main difference between the two lies in when taxes are paid. A Traditional 403(b) has taxes paid on the back end when the money is withdrawn- allowing pretax funds to grow in the account until the withdrawal date. A Roth 403(b) has taxes paid on the front end only allowing after-tax money to be deposited into the account. However once taxes are initially paid on the funds deposited into a Roth, there will be no further taxes required on the plan principal or profit accumulated.

Contributions are made through payroll and a salary reduction agreement. Once set up, the contributions will come directly out of your paycheck from your employer and be deposited in the account. It is not permitted to contribute to a 403(b) plan from a checking or savings account.

For the most part investment options are chosen by your employer and typically include a variety of annuities and mutual funds. An annuity pays out invested funds in a consistent income stream in the future. A mutual fund allows investment into stocks, bonds, or a combination of the two.

You can withdrawal your nest egg at age 59 1/2 with no early withdrawal penalty. Withdrawals before 59 1/2 years of age without a penalty can happen, but depend on the situation's circumstances.