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Difference Between 401k and 403b

  • Post last modified:February 9, 2023
  • Reading time:7 mins read
  • Post category:Economics

Definition of 401k and 403b

A 401(k) is a retirement savings plan sponsored by an employer. It allows employees to contribute a portion of their pre-tax salary into the plan, which is then invested and grows tax-deferred until withdrawal at retirement. Employers may also choose to match a portion of employee contributions.

A 403(b) plan is also a tax-advantaged retirement savings plan, similar to a 401(k). It is specifically designed for certain public sector and non-profit organizations, including schools, hospitals, and religious institutions. Like a 401(k), employees can contribute a portion of their pre-tax salary into the plan, and the funds grow tax-deferred until withdrawal.

Purpose of the outline

The purpose of the outline is to provide a structured overview of the key differences and similarities between 401k and 403b plans. This outline serves as a reference guide to help individuals understand the basic features of each plan and make informed decisions about which plan may be right for their retirement savings needs. The outline highlights key aspects such as eligibility, contributions, investment options, withdrawals, and plan administration, providing a comprehensive comparison of the two plans. The conclusion summarizes the key points and offers final thoughts on which plan may be a better fit for a given individual.

Difference Between 401k and 403b


Eligibility for a 401(k) plan is determined by the sponsoring employer. Private sector employers may choose to offer a 401(k) plan to their employees, and eligibility may be based on factors such as full-time status, length of service, or age.

Eligibility for a 403(b) plan is limited to employees of certain public sector and non-profit organizations, such as schools, hospitals, and religious institutions.

In general, both plans require that an employee be at least 18 years old and have a job with the sponsoring employer in order to participate. However, employer-specific requirements for eligibility may vary.


  1. Employee contributions: Employees can choose to contribute a portion of their pre-tax salary into both 401(k) and 403(b) plans. In 2022, the annual contribution limit for a 401(k) plan is $19,000 for individuals under age 50 and $26,000 for those 50 and older. The annual contribution limit for a 403(b) plan is the same.
  2. Employer contributions: Employers may choose to make contributions to their employees’ 401(k) or 403(b) plans, either through a matching program or as a set contribution. Employers are not required to make contributions to either plan, but some choose to do so to incentivize employee participation and help boost retirement savings.
  3. Limits and restrictions on contributions: In both plans, there may be restrictions on contributions for highly compensated employees or for those earning over a certain income threshold. Additionally, contributions may be limited or restricted if the employee takes a loan or hardship withdrawal from the plan.

It is important to note that contribution limits and restrictions are subject to change, based on IRS guidelines and employer policies.

Investment Options

Both 401(k) and 403(b) plans typically offer a range of investment options, including:

  1. Mutual funds: A type of investment vehicle that pools money from many investors to purchase a diversified portfolio of stocks, bonds, or other securities.
  2. Stocks: Ownership shares in a publicly traded company that provide potential for capital appreciation and income in the form of dividends.
  3. Bonds: Fixed-income investments that provide a steady stream of interest payments in exchange for loaning money to a corporation or government entity.
  4. Target-date funds: Mutual funds that automatically adjust their asset allocation over time to become more conservative as the target retirement date approaches.
  5. Exchange-traded funds (ETFs): A type of investment vehicle that tracks a specific market index, such as the S&P 500, and can be bought and sold like a stock.
  6. Money market funds: Low-risk, short-term investments that aim to preserve capital and provide a stable source of income.

Investment options available in each plan may vary based on employer-specific investment choices and administrative fees. Participants are usually able to choose from a variety of investment options, and can adjust their investment mix based on their individual investment goals and risk tolerance.

Plan Administration

  1. Plan administrator: Both 401(k) and 403(b) plans require a designated plan administrator, typically the employer or a third-party administrator. The administrator is responsible for managing the plan, including overseeing contributions, investments, and distributions.
  2. Plan documentation: Both plans must have written plan documentation, such as a plan agreement or summary plan description, that outlines the rules and regulations governing the plan.
  3. Compliance and regulation: Both plans must comply with federal laws and regulations, such as the Employee Retirement Income Security Act (ERISA) and Internal Revenue Code (IRC), as well as annual reporting requirements and filing of form 5500.
  4. Investment options: The plan administrator is responsible for selecting and managing the investment options available in the plan. Investment options may be limited or restricted based on employer policies and regulations.
  5. Fees: Both 401(k) and 403(b) plans may have administrative and investment management fees, which can impact the overall return on investment. It is important for plan participants to understand the fees associated with their plan and how they may impact their savings over time.

Similarities between 401k and 403b

401k and 403b plans have several similarities, including:

  1. Tax benefits: Both plans offer tax-deferred growth on contributions and investments, meaning contributions are made with pre-tax dollars and taxes are paid only upon withdrawal in retirement.
  2. Employer sponsorship: Both plans are typically sponsored by an employer and offered as an employment benefit to eligible employees.
  3. Employee contributions: Employees can make contributions from their pre-tax salary into both plans.
  4. Investment options: Both plans offer a range of investment options, such as mutual funds, stocks, and bonds.
  5. Age-based withdrawals: Funds in both plans can generally only be withdrawn without penalty after the age of 59 1/2.
  6. Required Minimum Distributions (RMDs): Both plans require account holders to begin taking RMDs starting at age 72, based on IRS guidelines.
  7. Loan options: Both plans may offer loan options, allowing plan participants to borrow against their account balance.


401(k) and 403(b) plans are both retirement savings vehicles designed to help individuals build a secure financial future. While there are similarities between the two plans, including the types of investments offered, contribution limits, and tax benefits, there are also key differences in terms of eligibility and plan administration.

Eligibility for a 401(k) plan is determined by the sponsoring employer, while eligibility for a 403(b) plan is limited to certain public sector and non-profit organizations. Contributions to both plans may be made by employees and employers, and investment options typically include mutual funds, stocks, bonds, target-date funds, ETFs, and money market funds. Withdrawals and distributions are subject to certain rules and restrictions, and plan administration is the responsibility of a designated plan administrator.

When choosing between a 401(k) and 403(b) plan, it is important to consider factors such as eligibility, investment options, fees, and plan administration to determine which plan is the best fit for your individual retirement savings needs. It is recommended to consult a financial advisor for personalized advice on choosing a retirement plan.

References website

  1. Internal Revenue Service (IRS):
  2. Department of Labor (DOL):
  3. The Securities and Exchange Commission (SEC):
  4. Financial Industry Regulatory Authority (FINRA):
  5. National Association of Retirement Plan Participants (NARPP):

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