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

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

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 that is financed by paychecks. You may pick how much you donate per pay period, but most experts recommend playing the maximum amount that your company will match because it’s free money. The most essential thing to know about your 401(k) is it’s the account into which you deposit your money, not your savings.

A 403(b) plan is identical to a 401(k), although it often forms part of annuities or funds custodian accounts. Similarly, its name alludes to the tax statute that created it, although 403(b) plans are often 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) plan is a tax-advantaged retirement funds group plan by many American businesses. It is named after a section of the United States Tax Code.

There are various varieties of 401(k) plans, the most common of which are the standard 401(k) and the Roth 401(k). The classic (or standard) 401(k) provides an immediate tax advantage on your investments. Investments to a Roth 401(k) are made after-tax earnings, so you cannot subtract the amount from your taxes for that year.

A 401(k) plan works in much the same manner as other forms of tax-advantaged retirement plans. The way a 401(k) works is that employees who are provided the benefit can choose to make additional payments toward their retirement. Employees may choose how and where to invest their donations by picking from a list of pre-selected investment opportunities, which are often mutual funds.

What is 403B?

403(b) plans are tax-advantaged retirement savings for schools, churches, and non-profit organizations. As with 401(k) plans, you may invest in both standard and Roth 403(b) plans, dependent on whether you choose your tax advantage now or in retirement.

Traditional 403(b) plans allow you to offset payments from your tax liability now while paying income tax on disbursements in retirement. You pay federal income taxes now and are not taxed in retirement with a Roth 403(b).

Retirement services are provided with 403(b) accounts, but they are less common even than 401(k)s as a result of the Act Of 1974. This legislation creates stringent minimum criteria for company retirement accounts, and many non-profits seek to avoid ERISA and the employer contributions it allows.

If your employer complies with the Act of 1974 and makes employer 403(b) payments, you may face a vesting period. However, this is frequently less than the term of a 401(k) retirement.

Main Differences Between 401K and 403B Retirement Plans

  1. You and your spouse can apply for a one-participant 401k if you are self-employed or a sole proprietor. People working for school systems, colleges, churches, and NGOs, on the other hand, are not eligible for 403b plans.
  2. The option of further deposits does not applicable for 401(k), however, 403(b) plans allow users to invest up to $3,000 a year for 5 years if they have worked for 15 years or more.
  3. A 401(k) allows you to invest in selected securities, bond funds, unit trust, and ETFs. In contrast, in a 403(b) plan, you can only invest in stocks and in annuities.
  4. Antidiscrimination testing is not required for 403(b) plans, but it is required for 401(k) plans.
  5. 401(k) plans provide far more generous match programs. However, if an employee has worked for a charity or government entity for more than 15 years, they may be entitled to make extra catch-up payments to their 403(b) plans that people with 401(k) plans cannot.


The sort of retirement savings plan you’re qualifying for is determined by your workplace; you don’t have the option of saving for retirement through a 403(b) or 401(k) plan.

In terms of retirement plans, 401(k) and 403(b) plans are fairly similar. Both have the same basic investment limitations, both provide Roth choices, and both require members to be at least 59.5 years old before receiving payouts.

Employers provide both 403(b) and 401(k) plans to help workers save for retirement. Because one is just for nonprofit organizations, you will most likely be unable to pick between the two.

If you’re thinking about joining one of these retirement plans, it’s always important to speak to a financial counselor first. As well as an opportunity to save for the future is advantageous, especially if your company matches your efforts. That’s money for free that can grow in a retirement plan like a 401(k) or 403(b). In any case, if you have the option, they’re both worth considering.


  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