What is a 403(b) vs. a 401(k) plan?
Editorial staff, J.P. Morgan Wealth Management
Both 401(k) and 403(b) plans are employer-sponsored retirement plans that allow you to contribute toward your retirement.
403(b) plans can be offered to employees of publicly funded schools, churches and 501(c)(3) non-profit organizations, while 401(k)s are usually offered to employees of for-profit companies.
401(k) plans are administered by investment and insurance companies, while 403(b) plans tend to be administered by insurance companies.
One of the most important benefits an employer can offer is a 401(k) or 403(b) retirement plan. That’s because these plans allow you and, if they choose to, your employer to contribute money toward your retirement in a way that offers distinct tax advantages.
If you’re eligible for one of these plans and want to know more about the similarities and differences between a 403(b) and a 401(k) plan, here are some important things to understand about these retirement plans. It’s important to note that as an employee you will likely not get to choose between these two plans, but you may come across both types during your career journey.
What are 403(b) vs. 401(k) plans?
Both 403(b) and 401(k) plans are employer-sponsored retirement plans. These plans allow employees to make pre-tax and in many cases post-tax contributions as a percentage of their income into a retirement account. In some cases, the employer will match that contribution up to a certain percentage.
The key difference between these two plans is the type of employer that offers each type of plan:
- 401(k) plans: Usually offered to employees of for-profit companies
- 403(b) plans: Can be offered to employees of public schools, ministers and other eligible employees of religious organizations and eligible employees of other 501(c)(3) non-profit organizations
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What are the similarities between 403(b) and 401(k) accounts?
As retirement accounts go, 403(b) and 401(k) accounts are structured largely the same way and mostly offer the same benefits to employees. These similarities include:
Employer contributions
Both types of plans allow your employer to make contributions toward your retirement and matching contributions is one common example. Matching contributions may be an incentive from your employer for you to contribute to your own retirement and to stay with the company.
There may be a determined period of employment you must reach with your employer for those matching dollars or other employer contributions to vest, meaning those dollars are yours to keep even if you choose to leave the company. The money you contribute is always vested.
Tax-deferred investments
Both 403(b) and 401(k) accounts allow employees to contribute a portion of their income into a retirement account. If you experience investment growth in your plan, that growth remains untaxed while in the plan. However, you may need to pay taxes on distributions from either the 403(b) or 401(k).
Return on investment
Utilizing either of these accounts may allow your money to go into investments like mutual funds, exchange-traded funds (ETFs), individual stocks or other investments that may provide a return. This may allow you to grow the money you’re investing for your long-term goals, like retirement.
When you cash out your 401(k) or 403(b), you’ll have access to your contributions, the vested money contributed by your employer (if any) and any investment income from the contributions.
Contribution limits
Both 403(b) and 401(k) accounts have the same basic annual contribution limit. For 2025, this limit is $23,500. Both accounts allow for additional contributions in some cases, but the rules for when and how much they allow differ.
Withdrawal penalties
Both accounts are designed to encourage long-term saving, so there are age-based restrictions on withdrawals. The minimum age for penalty-free withdrawal is usually age 59½. If you withdraw money from the accounts before then, you’re likely to face added costs including a 10% early withdrawal penalty, though there are some exceptions to this.
Ability to roll over investments
If you quit or are let go by your current employer, both accounts will allow you to roll your plan over into another retirement account, such as an IRA or Roth IRA, or possibly a new employer’s 401(k) or 403(b). This lets you avoid early withdrawal penalties and not lose progress toward your retirement savings goals. By doing this you also may avoid income taxes on the funds in the account.
What are the differences between 403(b) and 401(k) accounts?
While there are many similarities between these accounts, there are some differences, too. Knowing what they are can help you make informed decisions about how to best manage your plan.
Catch-up limits
As mentioned above, 401(k) and 403(b) accounts both have a basic annual contribution limit but both allow for additional catch-up contributions. With both plan types, you may be allowed to make additional contributions after you reach a certain age. This can be used to help you build your retirement savings faster as you get closer to retirement.
If you’re 50 or older, you may be allowed to contribute an additional $7,500 per year for a maximum of $31,000. From age 60 to 63, you may be allowed to make an additional catch-up contribution of $11,250 for a maximum of $34,750.
Regardless of age, 403(b) plans may also allow eligible employees with 15 years of service at the same employer to make catch-up contributions that are the lesser of the following:
- $3,000
- $15,000 minus the amount of additional elective deferrals made in prior years
- $5,000 multiplied by the employee’s years of service for the organization, minus the amount of additional elective deferrals made in prior years
This rule allows employees to make catch-up contributions earlier in their career, but it also sets a $15,000 lifetime cap on these catch-up contributions.
The bottom line
A 403(b) or 401(k) plan can be an effective way to set aside money for retirement. Our retirement planning experts can help you get the most out of your 403(b) or 401(k) plan and may be a helpful resource if you have additional questions.
Frequently asked questions about 401(k) vs. 403(b) plans
In most cases, your place of employment will determine whether you’re eligible to have a 401(k) or 403(b) retirement plan, so individuals likely won’t face this choice.
If you work for several employers, and may have the opportunity to contribute to both, yes. However, your contributions to both accounts are still subject to the maximum limits. So even if you have both accounts, the amount you can contribute toward them can’t exceed the annual limits set by the Internal Revenue Service (IRS).
State and government employees and contractors may be eligible for a 457(b) plan, which is similar to a 403(b) plan. Simplified Employee Pension (SEP) IRA plans, Savings Incentive Match Plans for Employees (SIMPLE) IRA plans and Defined Benefit plans are also plans that may be available through employers.
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Editorial staff, J.P. Morgan Wealth Management
