According to the U.S. Bureau of Labor Statistics, nearly three-quarters of civilian workers had access to an employer-based retirement plan in the U.S. in 2023. Two of the most common workplace-sponsored plans are 401(k)s and 403(b)s.

So what’s the difference?

A 401(k) is usually offered by a private company, while only certain types of employers — primarily public schools, churches, and tax-exempt charities — can offer a 403(b) to workers.

There are a few more subtle differences, though. In this article, we’ll walk you through the 401(k) and 403(b) rules, contribution limits, investment options, and other considerations that every retirement saver should know.

What is a 401(k)?

A 401(k) is a tax-advantaged retirement account that private-sector companies sponsor for their employees. To save in a 401(k), you’ll need to work for a company that offers one. You fund the account through automatic payroll deductions, which makes it more convenient to save for retirement. Many employers also match at least a portion of workers’ 401(k) contributions up to a specified percentage of their salary.

Most people contribute to their 401(k)s on a pre-tax basis, which lowers your tax bill for the current year. The money grows on a tax-deferred basis. You then pay taxes when you withdraw money from the account.

However, a growing number of employers now offer a Roth 401(k), which you fund with money you’ve already paid taxes on. As with a traditional 401(k), your money grows without being taxed as long as you don’t withdraw from the account. But if you wait until you’re at least 59 ½ to tap the account, your withdrawals are tax-free as well.

Learn more: What is a 401(k)? A guide to the rules and how it works.

What is a 403(b)?

A 403(b) is a type of tax-advantaged retirement account that’s similar to a 401(k), but only certain types of employers, like public school systems, religious institutions, hospitals, and nonprofit organizations, can sponsor them. Sometimes, a 403(b) plan is referred to as a tax-sheltered annuity or TSA plan.

If your employer offers a 403(b), you’ll also contribute to the account through payroll deductions. Employers can match employee 403(b) contributions — but most 403(b) plans don’t have a match.

Many 403(b) plans have both a traditional and Roth option. If you fund a traditional 403(b), you’ll get a tax break for the year you fund the account and then owe taxes on your withdrawal. If you opt for a Roth 403(b), you won’t get a tax break for the current year, but your withdrawals will generally be tax-free in retirement.

Learn more: Retirement planning: A step-by-step guide

Up Next

• How much can you contribute to your 401(k) in 2025?

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• How much should I contribute to my 401(k)?

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• How a 401(k) match works and why you should seek it out

403(b) vs. 401(k): What do they have in common?

Before we delve into the differences between a 401(k) and 403(b), let’s break down the similarities between the two:

Similarity 1: Both are employer-sponsored retirement accounts

To contribute to a 401(k) or 403(b), you need to work for an employer that sponsors a plan. Many employers match at least some employee 401(k) contributions, but most don’t match 403(b) contributions.

Similarity 2: Tax advantages

You can either lock in an up-front tax break (if you have a traditional 401(k) or 403(b) account) or a tax break on retirement withdrawals (if you have a Roth 401(k) or 403(b) plan).

Similarity 3: Contribution limits

Annual 401(k) contribution limits are mostly identical to 403(b) plan limits. In 2025, workers age 49 and younger can contribute no more than $23,500 to a 401(k) or 403(b). However, people 50 and older are allowed to make extra catch-up contributions. 403(b) plans can allow extra catch-up contributions above what’s allowed in a 401(k).

Similarity 4: Early withdrawal penalties

If you withdraw from a 401(k) or 403(b) before your age 59 ½, you’ll usually face a 10% IRS penalty on top of any applicable taxes. However, both plans are allowed to offer hardship withdrawals that may be penalty-free in some situations, like if you become permanently disabled. Many plans also allow 401(k) loans or 403(b) loans, which are tax- and penalty-free, but you’ll typically need to repay the loan plus interest within five years.

Similarity 5: Required minimum distributions (RMDs)

If you fund a pre-tax 401(k) or 403(b), you’ll be required to make mandatory taxable withdrawals called required minimum distributions (RMDs) once you turn 73. The RMD age will increase to 75 in 2033 under the Secure 2.0 Act that President Biden signed into law in late 2022. Note that as of 2024, RMDs are no longer required for Roth 401(k)s or 403(b)s under the new Secure 2.0 Act rules.

401(k) vs. 403(b): What are the differences?

Many of the differences between a 401(k) and 403(b) are subtle, but here are the most important distinctions you should be aware of.

Difference 1: Eligibility

Generally, a company that sponsors a 401(k) has to allow employees to participate if they’re at least 21 and have at least a year of employment. The plan is allowed to require two years of employment to receive an employer match, provided that the employer contributions are “vested,” meaning they belong 100% to the employee, after two years of service.

Workplaces that offer a 403(b) must allow any employee to participate, but there are a few exceptions. According to the IRS, employers can exclude you from a 403(b) plan if:

• You’ll make less than $200 in annual contributions

• You participate in another 403(b), 401(k), or 457(b) plan offered by the organization

• You’re a non-resident alien

• You typically work less than 20 hours per week

• You’re a student enrolled in work-study with the sponsoring institution

Difference 2: Vesting

A 401(k) can have a vesting schedule for employer contributions, which means employees don’t fully own those contributions until a certain amount of time has elapsed. For instance, an employer could offer a five-year vesting schedule where you get 20% ownership of employer contributions each year until you’re 100% vested. However, any contributions you make as an employee are always 100% yours.

403(b) plans can’t have a vesting schedule. You own 100% of any contribution you or your employer makes to the account immediately.

Difference 3: Investment options

Federal law generally limits 403(b) plan investments to annuities and mutual funds.

Your investment options tend to be much broader with a 401(k). Many 401(k) plans offer a wide mix of mutual funds and exchange-traded funds(ETFs). Some 401(k)s allow you to invest in individual stocks and bonds, as well.

Difference 4: Catch-up contributions

401(k) and 403(b) participants ages 50 and older are allowed to make catch-up contributions if their plan allows it. In 2024 and 2025, people 50 and older can contribute an extra $7,500 to a 401(k) or 403(b). If you’re between the ages of 60 and 63, you’ll be able to make an additional $3,750 catch-up contribution beginning in 2025 under new Secure Act 2.0 rules.

403(b) plan participants with at least 15 years of service are eligible for additional catch-up contributions. If your plan allows it, you can contribute an extra $3,000 per year, up to a lifetime maximum of $15,000, after 15 years on the job.

Difference 5: Regulation

401(k) plans are subject to the Employee Retirement Income Security Act of 1974, or ERISA, a law that spells out minimum standards for eligibility, managing the plan's assets, disclosures, vesting requirements, and more.

Some 403(b) plans are exempt from ERISA requirements — but only if they don’t match employee contributions.

Should you choose a 403(b) or 401(k)?

It’s pretty rare that you’d have to choose between a 401(k) vs. a 403(b). Usually, you’ll have access to a 401(k) if you work for a private employer, whereas you’ll be able to participate in a 403(b) if you work for a public school, church, or nonprofit. But here are some advantages of each plan:

Advantages of a 401(k) over a 403(b):

• A 401(k) is more likely to offer an employer match.

• 401(k) plans usually have more investment options than 403(b)s.

• There’s often more transparency because 401(k)s are subject to ERISA, but many 403(b)s are not.

• 401(k)s usually have fewer restrictions on plan loans than 403(b)s.

Advantages of a 403(b) over a 401(k):

• Most employees can participate, regardless of age and years of service.

• If your employer offers a 403(b) match, their contributions vest immediately.

• Employees age 50 and older with at least 15 years of service can make extra catch-up contributions.

Whether you’re offered a 401(k) or 403(b), you’ll want to take advantage given the tax benefits of these accounts. Aim to contribute at least enough to get your full employer match.

403(b) vs 401(k) FAQs

Can you have both a 401(k) and a 403(b)?

Because private companies typically offer a 401(k) while 403(b)s are limited to government and nonprofit employers, it’s rare that you’d be offered both through the same job. But in the unusual circumstance that you have access to both plans through the same employer or through two different jobs, your combined contributions can’t exceed the annual limit for the year. For instance, if you’re 40 and have a 401(k) and 403(b), your contributions between the two plans can’t exceed a total of $23,500 in 2025.

Is a 403(b) better than a 401(k)?

A 403(b) isn’t necessarily better than a 401(k). The main difference is that 401(k)s are usually offered by private companies, while 403(b)s are limited to schools, religious organizations, and tax-exempt charities. A 403(b) may also allow extra catch-up contributions for employees with 15 years of service, and all contributions vest immediately. However, the investment options are limited compared to a 401(k).

Can you roll over a 401(k) into a 403(b)?

Yes, if you switch jobs, you can roll over your money from your old employer’s 401(k) into your new job’s 403(b) and vice-versa without owing taxes or a penalty. However, you could wind up with a tax bill if you “mix” accounts with different tax structures, i.e., you roll over a pre-tax account into a Roth account.