403(b) retirement savings as a bridge to investment residency and a second home

A 403(b) retirement plan is a tax-advantaged savings plan for employees of public schools, certain non-profit organisations, and some religious institutions[2]. It lets eligible workers save for retirement by sending a portion of their salary straight into the plan.

403(b) operation in short

Contributions are usually made on a pre-tax basis, so the money goes into the account before income tax is applied. The investments then grow tax-deferred and tax is paid only when the money is withdrawn in retirement.

Some employers also match part of the employee’s contributions, which helps the savings grow faster. The money is typically invested in mutual funds or annuities. Withdrawals taken before age 59½ are subject to a 10% early withdrawal penalty.

Key parties in a 403(b) plan: employer, custodian, and participant

Every 403(b) plan involves three main roles working together to ensure the plan operates smoothly and in compliance with tax regulations:

1. Employer: a public school, tax-exempt non-profit, or religious organisation that offers the 403(b) plan. It chooses the plan provider and may add matching contributions.
2. Custodian or provider: the financial company, such as a mutual fund firm or insurance company, that holds the money in the plan and runs the investment options.
3. Participant: the employee who joins the plan, has money taken from their pay into the account, chooses investments, and receives the tax benefits and any employer match.

A 403(b) plan suits many employees in education, healthcare, and the non-profit sector, but it is not the right tool for every worker or every goal.

Best use cases for a 403(b) retirement plan

A 403(b) plan works best for people who work for public institutions or non-profit organisations and want a simple, tax-efficient way to save for retirement with little day-to-day effort. It is especially useful for[2]:

1. Teachers, university staff, and hospital employees working for government or non-profit employers.
2. Employees of charities, foundations, and religious organisations who can save through automatic payroll deductions.
3. Workers whose employer offers a match, so each personal contribution can trigger extra money from the employer.
4. People who prefer a simple, hands-off approach, using a small menu of mutual funds or annuities instead of managing many investments.
5. Those planning to stay in a qualifying job until retirement, so they can fully benefit from tax deferral and avoid early withdrawal penalties.

Once the participant reaches retirement age or leaves their job, funds from a 403(b) plan can be withdrawn, taxed, and then used to meet financial requirements for citizenship by investment programs, Golden Visas, or residency for financially independent persons.

Situations where a 403(b) is not the best fit

While a 403(b) plan offers clear tax advantages and ease of use, it does not suit everyone. It is often not the option of choice for:

1. Private-sector employees or freelancers, who generally cannot join a 403(b) and need other retirement plans.
2. People who want wide investment choice, since 403(b) plans usually limit options to a set list of funds and annuities.
3. Individuals who expect to use the money before age 59½, because early withdrawals are taxed and usually face a 10% penalty.
4. Very high earners who want to save much more than the annual limits, and therefore need additional or different savings vehicles.

A 403(b) plan varies mainly in two ways:

• how contributions are taxed — Traditional vs. Roth;
• how the money is held and invested — annuities vs. custodial accounts with mutual funds.

Most plans combine these features in one package.

Traditional 403(b) vs. Roth 403(b)

The key difference between Traditional and Roth 403(b) contributions is when income tax is paid[3].

Traditional 403(b): contributions go in before tax, which lowers taxable income now. Besides:

1. Both contributions and investment growth are tax-deferred.
2. Withdrawals in retirement are taxed as ordinary income.
3. If money is taken out before age 59½, the amount withdrawn is usually subject to income tax and a 10% early withdrawal penalty, unless an exception applies — for example, certain disability or separation-from-service cases.

Roth 403(b): contributions go in after tax, so they do not reduce taxable income now.

If the Roth account has been open for at least 5 tax years and the participant is 59½ or older, disabled, or deceased, withdrawals of both contributions and earnings are tax-free and penalty-free — these are called qualified distributions.

If money is taken out before these conditions are met, withdrawals are split into:

• contributions — not taxed again;
• earnings — generally taxed as income and may also face a 10% early withdrawal penalty if taken before age 59½ and no exception applies.

In short, a Traditional 403(b) gives a tax break now and tax later, while a Roth 403(b) takes care of tax now so that qualifying withdrawals in retirement can be tax-free.

Annuity plans vs. custodial accounts

US rules allow 403(b) money to sit only in specific types of accounts[4].

Annuity-based 403(b): the money goes into contracts issued by an insurance company. These can be:

• fixed annuities — with a stated interest rate;
• variable annuities — where returns depend on market-linked subaccounts.

Some contracts add features like guaranteed lifetime income, usually for an extra fee.

Custodial account 403(b): the money is held by a bank or other custodian and invested mainly in mutual funds. The employer and provider choose a menu of funds — equity, bond, balanced, target-date — from which the participant can pick.

Some church employers may also use retirement income accounts, which follow special rules but still invest in annuities or mutual funds.

A 403(b) lets both the employee and the employer put money into the same account, but the IRS sets yearly limits[5]. There is a cap on what the employee can defer from salary, a separate cap on the combined total from all sources, and extra “catch-up” room for some workers who are older or have long service.

Yearly limit put in by the employee

The employee decides how much salary to defer into the 403(b). These contributions are called elective deferrals. They cannot be more than:

• annual dollar limit,
• or 100% of the employee’s taxable pay with that employer.

In 2026, the projected limit is $24,500. Older employees may also be able to contribute extra catch-up amounts on top of this standard limit.

Yearly limit added by the employer

The employer can add money in two main ways:

• matching contributions — adding a percentage of what the employee contributes;
• nonelective contributions — paying in a set amount or percentage for eligible staff, even if some employees do not contribute.

Employee and employer contributions together are capped by the overall annual additions limit.

In 2026, the combined projected limit is the lesser of $72,000 or 100% of compensation which is a gross salary minus retirement deductions.

Yearly extra allowances

Catch-up contributions give extra room on top of the standard elective deferral limit for certain employees:

1. Employees aged 50+ can add an extra $8,000, for a total personal deferral of up to $32,500. Total employee and employer combined projected limit is $80,000.
2. Employees aged 60—63 may have an extra $11,250, for a total personal deferral of up to $35,750. Total employee and employer combined projected limit is $81,250.
3. 15-year service catch-up: some long-serving employees of qualifying organisations may be allowed to contribute up to an extra $3,000 per year, but this special extra amount is capped at $15,000 in total across all years with that employer.

Going over the limit

If contributions go over the allowed limits, the extra amount is called an excess deferral or excess contribution, and it needs to be fixed[6].

Extra money from the employee is usually taken out of the plan and paid back by the following April, 15th. If it is not removed on time, that amount can be taxed twice, or once when it goes in and again when it is later withdrawn[7].

Extra money from the employer or total contributions above the overall limit may have to be removed or reclassified under IRS correction rules.

In practice, a 403(b) is straightforward: an eligible employee signs up, chooses how much to contribute and where to invest, and then automatic payroll deductions and market growth build the account while the employer and provider take care of the administration.

Joining the plan and saving

When starting a job with a public school, hospital, charity, or other qualifying organisation, an employee is usually told whether a 403(b) is available.

Typical steps look like this[8]:

1. The employer tells the employee they are eligible and gives them a way to enrol, usually through forms or an online portal.
2. The employee decides what percentage of their salary to put into the 403(b), for example, 5—10%.
3. Contributions go in automatically through payroll, often every pay period.
4. The employee chooses whether contributions go in on a pre-tax basis, on an after-tax basis, or a mix.

If the employer offers a match, every employee contribution can trigger an extra payment from the employer into the same 403(b), increasing the total saved.

For example, the employee earns $60,000 a year and:

• contributes 5% → $3,000; 
• the employer matches 3% → $1,800;
• total going into the 403(b) each year → $4,800 → $144,000 over 30 years.

Picking investments

Once enrolled, the participant needs to decide how the money is invested. A 403(b) does not let someone choose any investment they like. Instead, the employer and plan provider offer a short list of options[9].

A typical investment menu includes:

1. Mutual funds: equity, bond, or mixed funds.
2. Target-date funds: a single fund that starts with more equities and automatically moves into more bonds and cash-like assets.
3. Fixed or variable annuities: insurance products that either pay a set interest rate or invest in market-linked options, so the value can rise or fall with the markets.

Two people both putting in $4,800 a year for 30 years can end up with very different balances, depending on whether they mainly choose equities, bonds, a target-date fund, a fixed annuity, or a variable annuity. The table below explains risks and typical growth potential for each option.

Mutual funds are often used with a mix that changes over time: advisers suggest holding more equities when retirement is far away to seek growth, and then gradually adding more bonds as retirement approaches to smooth out swings.

For example, someone in their 30s might spread the $4,800 a year as 80% in an equity fund and 20% in a bond fund. Closer to retirement, they might move to 40% equity and 60% bonds, or switch to a target-date fund that adjusts the mix automatically as the target year gets closer.

Variable annuities also invest in equity- and bond-like subaccounts, so the money is still in the market and can go up or down. 

The difference is that everything sits inside an insurance contract, which can add features such as death benefits or minimum income guarantees, but also higher fees. This suits people who want market growth plus extra protection and are willing to pay more than they would for simple mutual funds.

A fixed annuity fits those who value predictability. It is a contract with an insurance company where:

• insurer promises a fixed interest rate — typically 2—3% a year;
• amount put in does not go down as long as the contract rules are followed;
• growth is steady and easy to follow, but usually lower compared to what long-term stock market investing could provide.

Making account grow over time

A 403(b) account grows through regular employee contributions, possible employer contributions, and investment returns. It is designed to support steady, long-term saving rather than one-off deposits.

The balance grows because:

• money goes in automatically from each payslip;
• employer may add matching or other contributions;
• dividends and interest are reinvested inside the chosen funds or annuities;
• some plans include automatic features, such as small annual increases to the contribution rate or periodic rebalancing.

Because the money stays inside the account without current income tax, the full balance can grow over time until the participant starts taking withdrawals, usually in retirement.

Growth with mutual funds. Let’s return to our example with $144,000 in total contributions over 30 years.

The $144,000 is the only amount that is fully known in advance, assuming the employee and employer actually make these contributions each year. The expected growth depends on investment returns:

• if invested 80% in equities and 20% in bonds and the portfolio earns about 5—7% a year → the balance might reach around $330,000—490,000;
• if markets earn less → the final number could be lower;
• if held in very conservative options, for example, a fixed annuity earning around 3% a year → growth will be slower.

Growth with a fixed annuity. The only way to get close to a “known” final amount is if all money goes into a fixed annuity account inside the 403(b) with a clearly stated minimum interest rate, for example 3% a year guaranteed.

If the participant sends this full $4,800 a year into a fixed annuity at 3% fixed interest, the balance after 30 years would be about $228,000.

Changing jobs or retiring

Job changes and retirement do not erase the savings; they simply change how the 403(b) is handled[10].

When changing jobs, a participant has several options:

1. Leave the money in the old employer’s 403(b), if the plan allows.
2. Transfer the balance to a new employer’s plan or an individual retirement account to keep tax deferral.
3. Cash out the account, which usually triggers income tax and, if under age 59½, a 10% penalty.

At retirement, the participant may start regular withdrawals to supplement pension and Social Security income or convert part of the balance into an annuity for guaranteed income.

An appealing option for American retirees is to use 403(b) withdrawals to support relocation plans. These funds can help meet financial requirements for citizenship by investment, CBI, programs, Golden Visas, or residence permits for financially independent persons.

A 403(b) itself is not treated as a qualifying investment for these programs; the money must first be withdrawn or rolled over into more flexible accounts.

Citizenship by investment, residency by investment, and residency for retirees with passive income are three distinct routes to retire abroad. Each comes with its own perks and 403(b) withdrawal nuances.

Citizenship by investment programs

The Caribbean Five — St Kitts and Nevis, Antigua and Barbuda, Dominica, Grenada, and St Lucia — sit firmly among the world’s top CBI programmes[11]. They offer generous family inclusion and ask for no language tests, civic exams, or integration requirements on the path to a second passport.

Outside the Caribbean, Vanuatu in Oceania is a notable alternative, often ranked just behind the Caribbean leaders and known for fast processing and a comparatively low entry threshold.

For US retirees, Caribbean CBI options are especially appealing: warm climates, an easy pace of life, English widely spoken in many of these states, and tax regimes that can work well with pension and 403(b) withdrawal planning.

EU Golden Visa programs

Draft talk in the US about tightening or even ending dual citizenship makes the choice between CBI and Golden Visas more delicate for Americans[12]. CBI adds a second passport; a Golden Visa adds only residence, keeping US citizenship as the sole nationality on paper.

Golden Visas suit those who want an EU base, healthcare access, and a future relocation option without the extra passport risk. Most programs have no stay rules: only Portugal asks for 7 days per year.

Greece is now one of the busiest Golden Visa markets, with almost 70,000 residence permits in force, including investors and their family members[13].

Portugal Golden Visa has around 50,000 pending applications now[14], making these two the core EU residence options for US investors who prefer a residence card over a second passport.

Visas for financially independent persons

US retirees with passive income can consider visas for financially independent persons, FIPs. There is no need to empty a 403(b); scheduled withdrawals can be used as income, while the remaining balance stays invested and continues to grow.

Portugal and Spain both offer FIP visas, with minimum passive income thresholds of:

• €11,040 per year in Portugal;
• €28,880 per year in Spain.

Both visas allow spouses and parents to join the application. Children under 21 can be included in Portugal, while Spain allows children of any age, provided they are financially dependent on the main applicant.

Before making an investment, it helps to remember that programs judge what they see: the cash and assets in the applicant’s name and how clearly their origin is documented. It is essential to choose a sensible way to access 403(b) funds and to understand the tax rules in the destination country so it is clear how those withdrawals will be taxed after the move.

Retirement money check

Investment programs focus on source of funds and path of funds, not on US plan labels. They will usually want to see that:

• money comes from a legitimate, documented source;
• there is a clear trail from the retirement plan to the applicant’s bank account, and then into the investment or contribution;
• all steps comply with local AML and KYC rules, with no unexplained jumps in balance.

403(b) withdrawals and pension-style payments are normally accepted as a clean source, as long as statements and bank records are provided.

Two common ways to use the funds

Route 1: direct withdrawal and personal investment. The participant takes a lump sum or series of payments from the 403(b) into a personal bank account, pays US tax on the withdrawal, and then uses the net amount to meet the investment requirement. 

This route is simple and suits those close to retirement or ready to accept the immediate US tax bill.

Route 2: rollover, then investment. The 403(b) is first rolled over tax-deferred to another plan, usually a traditional or Roth IRA, or a self-directed IRA with more investment options. The new account holds and grows the money until withdrawals are later sent to a personal account and then used for the investment.

This route gives more control over timing and strategy. However, it must still follow US retirement rules and the program’s requirement that the qualifying asset is owned personally, not by the pension plan.

Documents to prepare

To show that 403(b)-origin money is clean and eligible, applicants usually need:

• plan and IRA statements showing the balance and the withdrawal or rollover;
• bank statements showing transfers from the 403(b) custodian to the personal account, and from the personal account to the government fund, developer, or approved investment fund;
• tax forms, typically US Form 1099-R and, where requested, recent US tax returns;
• standard KYC documents — passport, proof of address, CV.

Tax treatment after moving abroad

What US taxes. After obtaining CBI or residence by investment, a US person still pays US tax on 403(b) withdrawals under normal rules[16]:

• Traditional 403(b) payouts are taxed as ordinary income; 
• Roth 403(b) payouts can be tax-free if they meet the IRS rules. 

This applies regardless of where the person lives or which passport or residence permit they hold.

What is taxed abroad. The new country taxes 403(b) withdrawals, only if the person becomes a tax resident there. Thus, 403(b) withdrawals will be taxed as foreign pension or general income at the country's own rates. Double tax treaties can also apply so that foreign tax credits or exemptions help reduce double taxation.

The key point is that if a person withdraws 403(b) funds as a lump sum for investment before becoming a tax resident in another country, that withdrawal is generally taxed only in the US.

Foreign taxation becomes relevant once the investor has already moved and become a tax resident abroad and then starts taking withdrawals from time to time. In that case, the new country may also tax the 403(b) income. 

However, some countries offer flat-tax regimes or special rules for new residents, which can significantly reduce the overall tax burden on 403(b) withdrawals, especially when the amounts are large.

Taxation in the Caribbean and Oceania

Countries with no worldwide income tax. St Kitts and Nevis, Antigua and Barbuda, Grenada, and Vanuatu impose no personal foreign income tax[17]. In all three, a retired US investor 403(b) will pay only US tax on 403(b) withdrawals.

Dominica taxes residents on worldwide income under a progressive scale[18]. Current personal income tax bands are:

• 0% on income up to $30,000;
• 15% on $30,001—50,000;
• 25% on $50,001—80,000;
• 35% on income over $80,000.

Let’s assume a US retiree withdraws $80,000 from a 403(b) and transfers it to a bank account in Dominica:

• first $30,000 → 0% = $0;
• next $20,000 → 15% = $3,000;
• next $30,000 → 25% = $7,500;
• over $80,000 → not applicable.

Total income tax payable in Dominica on the $80,000 will be: $3,000 + $7,500 = $10,500.

St Lucia also taxes residents on foreign income. Under the current regime[19], once personal allowances are used, chargeable income is taxed at:

• 15% on $0—15,000;
• 20% on $15,001—30,000;
• 30% on over $30,000.

Assume the full $80,000 ends up as chargeable income for a St Lucia tax resident:

• first $15,000 → 15% = $2,250;
• next $15,000 → 20% = $3,000;
• remaining $50,000 → 30% = $15,000.

Total St Lucia income tax on the $80,000 will be: $2,250 + $3,000 + $15,000 = $20,250.

Taxation in the EU

Most EU Golden Visa countries tax foreign income on a progressive scale that varies by country, while Hungary stands out with a flat 15% rate[20].

In Hungary, though, pension is generally exempt from personal income tax[21]. However, voluntary private pension plans such as a 403(b) or IRA, especially when taken as a lump sum for investment, are often treated as other income or capital income and taxed accordingly at 15% plus any applicable social contributions.

The table below shows the typical personal income tax range on worldwide income in six EU countries and an approximate tax on a single $80,000 403(b) withdrawal.

Special tax regimes in Greece and Italy

For retirees. Greece and Italy offer a flat 7% tax on foreign pension income, including 403(b) withdrawals:

• in Greece, the regime lasts up to 15 years[22];
• in Italy, the special regime lasts 10 years and is limited to small towns in southern regions[23].

If $80,000 is withdrawn from a 403(b) under a 7% regime, the local tax bill is about $5,600 a year.

For high-net-worth individuals. Both countries also offer a flat annual tax for those with high income:

• Greece: €100,000 per year[22];
• Italy: €200,000 per year[24].

The flat-tax options are most attractive for people with foreign income in the high six figures, for example $600,000. In this case, standard progressive tax could easily produce a bill above $280,000, while flat-tax systems keep local tax at a fixed level and can significantly optimise the overall tax burden.

Flat-tax regimes apply to all foreign income, not only pensions: large 403(b) withdrawals, capital gains, dividends, and rental income can all fall under the same capped amount.

401(k) is another US tax-advantaged workplace retirement account. Both let employees defer salary, often receive employer matching, and grow investments in a tax-advantaged way. Later, both can serve as funding sources for investment residence or CBI once withdrawals are made in retirement.

Who can use each plan

403(b) is designed mainly for the public and non-profit sector: employees of public schools, colleges and universities, certain hospitals, charities, and religious organisations.

401(k) is the standard plan for the private sector and most for-profit companies. Employees of large corporations, small businesses, and many private employers will typically see a 401(k), not a 403(b), in their benefits package.

How contribution rules compare

For most workers, the core limits are effectively the same:

• annual employee deferral limit is identical in 403(b) and 401(k) — $24,500;
• combined cap on employee + employer money per year is also the same — $72,000;
• both can offer Roth options and age 50+ catch-up contributions.

The main extra feature on the 403(b) side is the 15-year service catch-up.

Investment choices and fees compared

A 403(b) is generally limited to annuity contracts and mutual funds. In practice, many 403(b) plans are built around insurance-company annuities with a menu of mutual funds inside, sometimes with more complex or higher fees. 

A 401(k) usually invests through mutual funds, index funds, and similar pooled vehicles selected by the employer and plan provider. Large 401(k)s often have broader menus and access to low-cost institutional share classes.

Options when leaving a job

When leaving an employer, 403(b) and 401(k) plans behave in similar ways. The usual choices are to:

• leave the money in the old plan;
• roll it into a new employer’s plan;
• roll it into an IRA;
• cash out.

The main practical difference is that older, annuity-based 403(b)s can have extra product restrictions or surrender charges, while 401(k) assets in mutual funds tend to be easier to move in a straightforward rollover.

1. A 403(b) is a tax-sheltered annuity plan for employees of public schools, qualifying non-profits, hospitals, and some religious institutions.
2. The employee contributes via payroll deductions, the employer may add matching contributions, and money is invested in a menu of mutual funds and annuities.
3. In retirement, 403(b) payouts can be used to fund Golden Visas, CBI, or FIP residence once the money reaches the retiree’s personal accounts.
4. Traditional 403(b) goes in before tax and is taxable as ordinary income, while Roth 403(b) goes in after tax and can come out tax-free.
5. Early withdrawals from either traditional or Roth 403(b) face US income tax plus a 10% penalty.
6. Abroad, 403(b) withdrawals may also be taxed in the country of tax residence as foreign pension income or general income.
7. St Kitts and Nevis, Antigua and Barbuda, Grenada, and Vanuatu impose no worldwide income tax, so 403(b) withdrawals and other foreign income of an American holding a passport in one of these countries are not taxed locally.
8. Some EU states offer favourable regimes for foreign pensions and investment income, such as Greece and Italy, so a residence permit holder can cut local tax on 403(b) withdrawals to a low flat rate.

1. Source: U.S. Department of State — Consular affairs by the numbers
2. Source: IRC 403(b) tax-sheltered annuity plans
3. Source: Traditional IRAs vs. Roth IRAs
4. Source: IRC 403(b) tax-sheltered annuity plans
5. Source: Iowa Department of Administrative Services — IRS 403b Contribution Limits
6. Source: IRS — Consequences to a participant who makes excess annual salary deferrals
7. Source: IRS — 403(b) plan fix-it guide
8. Source: IRS — Retirement plans FAQs regarding 403(b) tax-sheltered annuity plans
9. Source: IRS — Publication 571 (01/2025), Tax-Sheltered Annuity Plans
10. Source: U.S. Department of Labour — What You Should Know About Your Retirement Plan
11. Source: CBI Report Index 2025
12. Source: A Bill, 119th Congress 1st Session — To establish that citizens of the United States shall owe sole and exclusive allegiance to the United States, and for other purposes.
13. Source: Greek Ministry of Migration & Asylum — Legal Migration: Annex B (Analytical tables), September 2025
14. Source: Bloomberg — Portugal
15. Source: Best Places to Retire in 2026: The Annual Global Retirement Index
16. Source: IRS — Taxable income
17. Source: Official sources on foreign income in St Kitts and Nevis, Antigua and Barbuda, Grenada, and Vanuatu
18. Source: Inland Revenue Division of Dominica — Current Income Tax Rates
19. Source: Inland Revenue Department of St Lucia — Tax Facts Calculations
20. Source: PwC — Taxes on personal income in Hungary
21. Source: OECD — Pensions at a glance: Hungary
22. Source: Greek Independent Authority for Public Revenue — Tax incentives in order to attract new tax residents
23. Source: Agenzia Entrate — Optional scheme for non-national pensioners
24. Source: Agenzia Entrate — Neo residenti: Regime opzionale