Difference Between 401K and 403B Retirement Plans (With Table)

Retirement planning entails planning in advance for your life and future so that you can seek to maintain all of your goals and ambitions on your own. This process includes setting retirement objectives, predicting how much wealth you’ll require, and investing to increase your retirement savings.

Retirement plans are also known as pension plans. Paying premiums throughout your prime earning years to secure a regular cash flow after retiring. Pick a good retirement plan that fits your expectations. 401(k)s and 403(b)s are the two most prevalent retirement plans.

401K vs 403B

The main difference between 401K and 403B retirement plans is that 401(k) plans are only available to workers of for-profit businesses.  On the other hand, 403(b) retirement plans are available to employees of some nontaxable or Nonprofit organizations, such as schools, universities, or healthcare.

A 401(k), named after the section of the tax code that it comes under, is an independent contractor, a tax-advantaged retirement plan financed by paychecks. You may pick how much you donate per pay period, but most experts recommend playing the maximum amount your company will match because it’s free money. The most essential thing to know about your 401(k) is the account into which you deposit your money, not your savings.

A 403(b) plan is identical to a 401(k), although it forms part of annuities or funds custodian accounts. Similarly, its name alludes to the tax statute that created it, although 403(b) plans are referred to as  (TSA) plans. Investments to 403(b) plans, like 401(k) plans, are tax-deductible; companies can give employer contributions, and you can even borrow against either account. 

Comparison Table Between 401K and 403B Retirement Plans

Parameters 401K403B
The eligible employer Every employerEducational organizations and nonprofit groups.
Eligible employees Persons above the age of 21, with one year of employment, union employees protected by collective agreements, and non-resident immigrants without no U.S. earnings cannot be excluded.Employees working or less 20 hours a week, academics on vacations, and non-resident immigrants without no U.S. income are all eligible.
Administrators of ProgramsMost mutual fund providers handle the 401k retirement plan.Various insurance providers supervise and administrate the 403b retirement plan.
Deductions &
Employer donations are taxable. Employees benefit from tax deferral. Contributions from employees are pre-tax and tax-deferred.Employees benefit from tax-deferred payroll deductions. Contributions from employees are pre-tax and tax-deferred.
Alternatives for investingAny investment that is acceptable underneath the plan. There are several possible vesting schedules. All employee voluntary hardship deferments are instantly vested.
Only unit trusts and annuities are permitted. There are several possible maturing schedules. All employee voluntary deferrals are instantly vested.

What is 401K?

A 401(k) is a popular retirement savings plan in the United States offered by employers to their employees as a means to save for retirement. Named after a section of the Internal Revenue Code, it allows individuals to set aside a portion of their salary on a pre-tax basis, which means the contributions are deducted from their paycheck before income taxes are calculated. This provides an immediate tax benefit by reducing the individual’s taxable income.

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Key features of a 401(k) plan include:

  1. Employee Contributions: Participants can contribute a portion of their salary to their 401(k) accounts, subject to annual contribution limits. As of 2021, the annual limit is $19,500 for individuals under 50, with a catch-up contribution of $6,500 allowed for those aged 50 and older.
  2. Employer Matching: Many employers offer matching contributions, where they contribute a certain percentage of the employee’s salary into their 401(k) account, up to a specified limit.
  3. Investment Options: Participants can choose from various investment options, including stocks, bonds, mutual funds, exchange-traded funds (ETFs), and more. These investments grow tax-deferred until retirement.
  4. Vesting: Contributions made by the employer may be subject to a vesting schedule, determining when employees have full ownership of those contributions.
  5. Portability: If an employee changes jobs, they can roll over their 401(k) funds into a new employer’s plan or an Individual Retirement Account (IRA).
  6. Tax Deferral: Contributions and investment gains are tax-deferred until withdrawals are made in retirement, potentially allowing for significant long-term growth.

401(k) plans allow individuals to build a retirement nest egg through regular contributions and employer matches, making them a valuable tool in retirement planning.

What is 403B?

A 403(b) tax-sheltered annuity (TSA) plan, is a retirement savings vehicle in the United States specifically designed for employees of tax-exempt organizations and non-profit entities. This includes educational institutions (such as public schools and universities), hospitals, religious organizations, and certain non-profit organizations.

The primary purpose of a 403(b) plan is to help employees save for retirement by allowing them to contribute a portion of their salary to the plan on a pre-tax basis. These contributions, called elective deferrals, are made before income tax is deducted, reducing the employee’s current taxable income. This tax advantage allows individuals to save for retirement while potentially lowering their immediate tax liability.

One of the distinguishing features of a 403(b) plan is that it offers limited investment options, focused on annuities and mutual funds. These investment options are intended to provide employees with a relatively conservative and stable approach to retirement savings.

Employers offering 403(b) plans may also provide matching contributions, similar to 401(k) plans, although the structure and terms of these matches can vary by employer. Like other retirement plans, 403(b) plans have annual contribution limits and may allow participants aged 50 and older to make catch-up contributions.

Main Differences Between 401K and 403B Retirement Plans

1. Eligible Employers


  • Available to employees of for-profit organizations, including corporations, small businesses, and private companies.
  • Offered by a wide range of employers, from large corporations to small startups.


  • Primarily available to employees of tax-exempt organizations, such as public schools, universities, hospitals, religious organizations, and certain non-profit entities.
  • Geared towards employees of educational and non-profit institutions.

2. Contribution Limits


  • As of 2021, the annual contribution limit is $19,500 for individuals under 50.
  • Individuals aged 50 and older can make catch-up contributions of an additional $6,500, bringing the total annual limit to $26,000.


  • Like the 401(k), the annual contribution limit 2021 is $19,500 for individuals under 50.
  • Individuals aged 50 and older can also make catch-up contributions of an additional $6,500, making the total annual limit $26,000.

3. Employer Contributions


  • Employers provide matching contributions, contributing a certain percentage of the employee’s salary into their 401(k) account.
  • Matching contributions vary by employer, with some offering dollar-for-dollar matches, while others may contribute a percentage of the employee’s salary up to a specified limit.
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  • Many employers offer a similar benefit, known as a 403(b) match, wherein the employer contributes a percentage of the employee’s salary to their retirement account.
  • The specific match varies by employer and can differ from the 401(k) matching structure.

4. Vesting Period


  • Vesting determines when you have full ownership of your employer’s contributions.
  • Employers may use different vesting schedules, such as immediate or gradual vesting over several years.


  • Like 401(k) plans, 403(b) plans have vesting schedules.
  • The vesting schedule in a 403(b) plan can vary by employer, with some offering immediate vesting and others using a graded vesting schedule.

5. Investment Options


  • Typically offers a broader range of investment options, including stocks, bonds, mutual funds, exchange-traded funds (ETFs), and potentially even employer stock.
  • Investment options may vary depending on the plan’s design and the choices made by the employer.


  • Traditionally, it offers a more limited investment menu, consisting of annuities and mutual funds.
  • Some 403(b) plans may provide access to a wider variety of investment options but are more focused on conservative choices.

6. Catch-Up Contributions


  • Individuals aged 50 and older can make catch-up contributions of up to $6,500 in addition to the regular contribution limit.


  • Allows individuals aged 50 and older to make catch-up contributions of the same amount, up to $6,500, mirroring the 401(k) catch-up provision.

7. Governmental Regulations


  • Governed by the Employee Retirement Income Security Act (ERISA), which sets regulations for retirement plans offered by for-profit employers.


  • Subject to the regulations outlined in Section 403(b) of the Internal Revenue Code, which guides tax-exempt organizations and non-profit employers.

8. Employer Discretion


  • Employers have significant discretion in selecting the plan provider, investment options, and contribution matching structure.
  • Employers may change these features over time but must follow ERISA regulations.


  • Non-profit and tax-exempt organizations have more limited discretion in plan design, as 403(b) plans are subject to specific regulations outlined in the Internal Revenue Code.
  • Plan features are more standardized, but employers still have some flexibility in selecting providers and investment options.

9. Investment Providers

401(k): Employers choose from various financial institutions, such as banks, mutual fund companies, or insurance companies, to provide investment options.

403(b): Commonly offered through annuity contracts provided by insurance companies or through custodial accounts held with mutual fund companies.

10. Loan Provisions

401(k): Many 401(k) plans allow participants to take out loans from their accounts, with specific rules and limits set by the plan.

403(b): Some 403(b) plans permit loans, but the availability and terms can vary by employer and plan provider.


In conclusion, the differences between 401(k) and 403(b) retirement plans are significant and are primarily rooted in the types of employers they serve and the specific regulations governing them. While both plans share the goal of helping individuals save for retirement through tax-advantaged means, understanding these distinctions is crucial for employees and employers. Here’s a brief summary of the key points:

  1. Eligible Employers: 401(k) plans are designed for for-profit organizations, while 403(b) plans cater primarily to tax-exempt and non-profit entities, such as educational institutions, hospitals, and religious organizations.
  2. Investment Options: 401(k) plans offer a broader array of investment choices, including stocks, bonds, and ETFs, while 403(b) plans traditionally focus on annuities and mutual funds.
  3. Governmental Regulations: 401(k) plans are governed by the Employee Retirement Income Security Act (ERISA), while 403(b) plans follow regulations outlined in Section 403(b) of the Internal Revenue Code, which applies to tax-exempt and non-profit employers.
  4. Employer Discretion: Employers have more latitude in designing 401(k) plans, including selecting investment options and matching structures. 403(b) plans have more standardized features due to IRS regulations.
  5. Loan Provisions: While both plan types may permit participant loans, the terms and availability can differ, with some 403(b) plans offering more limited loan options.


  1. https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1465-7295.2011.00390.x
  2. https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1755-053X.2007.tb00088.x

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Hi! I'm Nidhi.

Here at the EHL, it's all about delicious, easy recipes for casual entertaining. So come and join me at the beach, relax and enjoy the food.

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