Identification

• Only employees of nonprofit organizations can contribute to a 403b plan through their employer; you cannot start a 403b plan on your own. Roth IRAs must be opened and maintained by individuals. However, the IRS does not permit people whose modified adjusted gross incomes exceed the annual limit to contribute to Roth IRAs. These limits change each year for inflation. For example, for 2010 you cannot contribute to a Roth IRA if your modified adjusted income exceeds $120,000 and you are single, $177,000 and you are married filing jointly or $10,000 if you are married filing separately.
  
  

Size

• The contribution limit for a 403b plan greatly exceeds the contribution limit for a Roth IRA. As of 2010, the maximum individual contribution to a 403b plan equals $16,500 ($22,000 for people 50 and older) while Roth IRAs cap contributions as $5,000 ($6,000 for people 50 and older). Roth IRAs do not permit employer contributions. With a 403b plan, the employer can contribute up to the employee's compensation for the year, as long as the total contributions between the employer and employee do not exceed $49,000.
  
  

Investments

• Roth IRAs offer a wider range of investment options than 403b plans. The only investments off limits to Roth IRA plans are collectible items and personally beneficial investments. Collectibles include paintings, sculptures, gems and antiques. Personally beneficial investments include buying stock in a company you own or buying a house that you will live in. The IRS restricts 403b plans to investing only in mutual funds and annuities.
  
  

Tax Benefits

• Contributions made to a 403b plan do not count as taxable income because they are made with pretax dollars. Money grows tax-free while it remains in the account and qualified distributions are subject to income taxes. With a Roth IRA, the benefits flip: contributions provide no tax benefits, the money grows tax-free in the account and then qualified distributions can be taken tax-free. This makes 403b plans more advantageous for people who expect to be in a higher tax bracket for the current year than in the years that they will take withdrawals.
  
  

Withdrawing Money

• You may withdraw money from a Roth IRA at any time, but only withdrawals taken after turning 59 1/2 and having the account open for five years count as qualified withdrawals. Early withdrawals of contributions do not get taxed or penalized, but early withdrawals of earnings must be reported as taxable income and subjected to a 10 percent early withdrawal penalty unless an exception applies, such as a permanent disability. The IRS only permits 403b money to be withdrawn when you leave employment, turn 59 1/2 years old or have a permanent disability. The IRS defines qualified distributions from 403b plans as those taken after turning 59 1/2. Early distributions get hit with a 10 percent early withdrawal penalty, unless an exception applies, such as a permanent disability. The IRS also permits 403b plans to allow account holders to borrow from the plan; Roth IRAs do not permit loans.
  
  

Misconceptions

• Roth 403b plans are different than Roth IRAs, as well as being separate from a tax-deferred 403b account. Roth 403b plans must be created through a non-profit employer, while Roth IRAs can only be created by individuals. Even though Roth 403b plans and Roth IRAs offer after-tax savings, the two plans cannot be combined. Another important difference between the two types of plans is that Roth 403b plans are subject to required minimum distributions, while Roth IRAs are exempt.