Definition of "403(b)"

A type of qualified retirement plan that is available to employees of public schools and tax-exempt organizations that uses tax-deferred annuity or mutual funds. The plan is similar to a 401(K) plan and permits pre-tax contributions by employees to be made to an individual accounts. The contributions and income earned on the account are deferred from income taxes until withdrawn at retirement. There are income tax penalties, and possible plan penalties for early withdrawals. Some plans do permit loans.