403(b) vs. 401(k): Which Is Better?
Written by
Carley Clark
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Joe Evans
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Thinking about your retirement can feel both exciting and overwhelming. When it comes to workplace retirement plans, two of the most common options are 403(b) and 401(k). You’ve probably heard of a 401(k), but if you work for a nonprofit or school, you might see the 403(b) label pop up instead.
In this article, we’ll explore 403b vs 401k and break down what sets these plans apart.
Let’s break down the main differences between a 401(k) and 403(b) and how to choose the best plan for your financial goals.
What Are 401(k) and 403(b) Plans?
While both of these retirement plans might seem similar at first glance, there are some key differences to keep in mind that differentiate them.
For an easy comparison, here’s a quick breakdown of the two:
403(b) vs 401(k)
| Feature | 403(b) | 401(k) |
|---|---|---|
| Who Can Offer It | Nonprofits, public schools, religious entities | Private sector for-profit companies |
| Employer Match | Possible, but not as common | Common, often 3% to 5% or more |
| Investment Choices | Typically annuities & mutual funds | Wider variety (stocks, bonds, mutual funds) |
| Administrative Costs | Usually lower, less ERISA oversight | Potentially higher costs, more rigorous oversight |
| Tax Structure | Pre-tax or Roth contributions | Pre-tax or Roth contributions |
| Target Audience | Teachers, nonprofit employees, clergy | Private sector employees |
If you want to get more details about both plans, read on for more:
Definition of a 403(b) Plan
A 403(b) plan is a tax-advantaged retirement savings vehicle offered primarily by:
- Public school systems
- Nonprofits
- Certain tax-exempt organizations (like churches)
When you contribute to a 403(b), your money can grow tax-deferred until you withdraw it, typically in retirement. Some 403(b) plans also allow a Roth option, meaning you can fund it with after-tax contributions and enjoy tax-free withdrawals on qualified distributions.
Definition of a 401(k) Plan
A 401(k) plan is an investment account typically offered by private-sector employers.
Employees can have money withheld from their paychecks before they pay taxes and deposit it into their retirement accounts. Then, they can choose the investments from the options available for that particular plan.
In most cases, the employer will match part of the employee’s contribution with additional funds.
Similarities Between 403(b) and 401(k) Plans
A 403(b) and a 401(k) are more alike than they are different. Here are some of the primary similarities:
- Contribution Limits: The total cap for both employee and employer contributions is $70,000 or 100% of employee compensation in 2025 for both 401(k) and 403(b) accounts.
- Tax Advantages: Many employers offer traditional and Roth 401(k) or 403(b) accounts. With a Roth designation, you contribute after-tax dollars and can withdraw tax-free in retirement — as opposed to a traditional plan with tax-deferred contributions.Â
- Early Withdrawal Penalties: Both plans have a 10% penalty (plus income tax) if you withdraw before age 59 ½ and may allow exceptions for certain circumstances, like death, disability or medical expenses.
- Rolling Over Funds: You can generally roll over a 403(b) into a 401(k) and vice versa if you change jobs. You can also roll the money into an IRA. However, always check your plan’s rules and consult a tax professional when handling rollovers.
Key Differences Between 403(b) vs. 401(k) Plans
While both accounts help you save for retirement, the 401k vs 403b debate often comes down to who sponsors the plan, what investments are allowed, and how much the plan costs to administer.
1. Eligibility
403(b):
- Typically available to employees of public schools, nonprofits and religious organizations.
- Examples include teachers, professors at public colleges and workers at charitable nonprofits.
401(k):
- Primarily for private sector employees.
- Offered by large corporations, small businesses, and everything in between.
2. Employer Matching Contributions
Many employers match at least a portion of your contributions to encourage saving.
- 403(b): Some nonprofits and public institutions might offer matching, but it’s not as universally common as in the private sector.
- 401(k): Employer matches are fairly typical in for-profit companies. According to the Bureau of Labor Statistics, a common match might be around 3% to 5% of your salary, but percentages vary widely.
3. Investment Options
- 403(b): Often limited to annuities and mutual funds. Though the range can be narrower, some plans do offer a decent variety of mutual funds.
- 401(k): Tends to have a broader investment menu, including mutual funds, stocks, bonds, and sometimes target-date funds or even brokerage windows.
4. Administrative Costs and Oversight
- 403(b): Nonprofits and public schools often face lower administrative requirements, potentially leading to fewer fees. However, plan oversight can sometimes be less rigorous.
- 401(k): Plans in the private sector may have higher costs but also offer more robust management and oversight, ensuring compliance with regulations like the Employee Retirement Income Security Act (ERISA).
Choosing Between a 401(k) vs. 403(b): What to Consider
Both plans are so similar that it’s hard to say if one is better than the other. The best thing to do is to compare the specific plans to determine which retirement account is right for you.
Employer Type and Plan Availability
As mentioned earlier, public schools, churches and nonprofits usually provide 403(b) plans, while private-sector companies have 401(k) plans.
Since each employer can only offer one or the other, the only time you would need to decide which is better would be if you were comparing job offers from organizations that provide different types of plans.
Investment Goals
You may have fewer investment options with a 403(b) vs. 401(k), so you should consider how you’d like to invest your money.Â
If you want more control over your investments, a 401(k) may be the way to go. However, if your employer offers a 403(b) plan with low-cost mutual funds, it could still be a great way to save for retirement.
Employer Contributions
Another important factor when comparing a 401(k) vs. 403(b) is whether your employer offers matching contributions. While 401(k)s are more likely to include employer contributions, you can still find them with 403(b) plans.
If everything else is equal, choose the organization with the most generous match.
How to Maximize Savings in Either Plan
Whether your employer offers a 403(b) vs. 401(k) or a different retirement plan, the best thing to do is start contributing as much as you can as early as possible.
Take Full Advantage of Employer Matches: Contribute at least enough to snag the full match your employer offers. It’s essentially free money that can accelerate your retirement savings.
Watch Your Contribution Limits: You should also be mindful of IRS contribution limits to avoid paying extra taxes. Over-contributing can lead to IRS penalties or complicated corrections. For 2025, employees can contribute up to $23,500.
Consider Catch-Up Contributions: If you’re 50 or older, you can put in extra money each year. Some 403(b) plans even allow additional catch-up for employees with long service histories.
Diversify Investments: Review your plan’s mutual funds, stocks, bonds, or annuity options. Spread your money across multiple asset classes to balance risk and reward. For deeper insights, you might explore our guide on Types of Investment Accounts and Strategies, which can help you navigate your choices.
Final Take to GO
When weighing 403b vs 401k, remember that the difference between 401k and 403b largely boils down to the type of employer offering it, the range of investments, and how much your employer contributes. Both plans share core similarities — like contribution limits and potential tax benefits — and both can help you save effectively for retirement.
Regardless of which plan you have, here are your top priorities:
- Contribute enough to get the full employer match, if offered.
- Review your investment options and maintain a well-rounded portfolio.
- Stay updated on IRS rules and contribution limits to maximize your tax advantages.
If you’re still on the fence, consider meeting with a financial advisor or checking out more of our retirement planning guides. Understanding your retirement plan is a vital step toward a secure future — so take the time to figure out which plan aligns best with your goals.
FAQs About 403(b) and 401(k) Plans
intro intro intro- Can you have both a 403(b) and a 401(k)?
- Yes, in certain situations. For instance, if you work two jobs -- one at a nonprofit and one at a private company -- you might have both. However, your total contributions to both plans must still stay within the IRS limits.
- Which plan is better for nonprofit employees?
- Typically, nonprofit employees don’t get to choose between a 403(b) and a 401(k) because nonprofits usually offer only a 403(b). If you have access to both, it depends on the plan specifics like fees, employer match, and investment options.
- How do contribution limits differ between the two plans?
- They don’t. The IRS sets uniform limits for both 403(b) and 401(k) plans each year. In 2023, that cap is $22,500 if you’re under 50, with an extra $7,500 in catch-up contributions for those 50 and over.
- Are there Roth options for both plans?
- Yes. Many 403(b) and 401(k) plans offer a Roth component, allowing you to contribute after-tax dollars and potentially withdraw tax-free in retirement.
- What happens if you change jobs and switch sectors?
- You can often roll over your 403(b) balance into a new 401(k) or into an IRA. The same is true if you leave a 401(k) job for a 403(b) position. Always verify with your new plan’s administrator and consider talking to a financial professional to avoid unintended tax consequences.
Jacob Wade contributed to the reporting for this article.
Information is accurate as of Feb. 28, 2025.
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