403(b) vs. 401(k)

If you’re starting a new job, you likely have the opportunity to join an employer-sponsored retirement plan. The most common options are typically a 403(b) or a 401(k). Both of these are defined contribution plans, allowing you to decide how much to contribute to your account each month. Your retirement payout will depend on the amount you save over your career and the performance of your investments.

Working with a financial advisor can help you develop a tailored plan to meet your retirement goals and secure your financial future.

Though 401(k) plans and 403(b) plans are similar in many ways, there are a few key differences to know if you’re about to start a new job where one of these plans is offered. This is especially important if you’ll be contributing to one type of plan after having participated in the other at a previous company.

403(b) vs. 401(k): Similarities

Employers sponsor both types of retirement plans, and employees can join the plan to save for retirement. The company may offer to match employee contributions up to a certain limit.

The money is then invested in investment vehicles, such as mutual funds. The hope is that your investments will grow steadily throughout your career, so you will have saved a tidy nest egg when you retire.

Employees contribute pre-tax money in both 401(k) plans and 403(b) plans. When an employee eventually retires, they pay income tax on the money as it is withdrawn from the plan.

This has a few implications.

By contributing to these retirement plans, you lower your taxable income in the current year.
If you expect to be in a lower tax bracket come retirement, this would mean that the tax burden for your investments is less than if you had paid taxes when you earned it.

Both plan types also allow for early withdrawals but not without penalties. Fees apply when taking money from either type of retirement plan before age 59 ½ (or, in some cases, age 55).

Contribution Limits

The same rules for maximum contributions apply to both types of plans.

The maximum you can save for either a 401(k) or a 403(b) in 2026 is $24,500, up from $23,500 in 2025. This is cumulative, so if you switch jobs mid-year, you can contribute a total of $24,500 to all defined contribution plans you have access to in a given year.

The contribution limit for both plans increases by $8,000 for employees who are 50 or older.

403(b) vs. 401(k): Differences

There are some noteworthy differences between a 403(b) and a 401(k).

For one, the two plans are available from different types of workplaces. For-profit companies typically offer 401(k) plans. Because most people work at for-profit companies, the majority of workplace retirement plan participants use a 401(k).

Not-for-profit and public sector institutions, meanwhile, use 403(b) plans. If you work for a charity or government entity, such as a school or municipal department, you may be able to save through a 403(b).

The Employee Retirement Income Security Act (ERISA) governs all 401(k) plans. It protects plan participants and guarantees certain rights, so it is critical to know whether your plan is covered under this law.

Some 403(b) plans are subject to ERISAbut not all. If you work at a private not-for-profit employer like a charity or think tank, your plan qualifies. However, if you work in a public sector job, such as a school system or public university, your plan is not subject to ERISA regulations.

Participants who have been employed at a not-for-profit entity for over 15 years may find another advantage, especially if they saved little for retirement earlier in their careers. Employees who have been with the company for over 15 years may make extra contributions beyond the 403(b) contribution limit. In 2026, these employees can defer up to $15,000 into their 403(b) plan.

There is one caveat, however: this only applies to some 403(b) plans. The company or municipality sponsoring the plan must choose to offer it as a feature.

How Withdrawals Work for 401(k) and 403(b) Plans

There are some noteworthy differences between a 403(b) vs. a 401(k).

Withdrawals from a traditional 401(k) or 403(b) are treated as taxable income because contributions are typically made before taxes.

When distributions begin, each withdrawal increases taxable income for that year, potentially affecting marginal tax rates and other income-based thresholds. The tax treatment does not change based on whether the plan is offered by a private employer or a nonprofit organization.

Accessing funds before the standard retirement age can trigger additional costs. Distributions made before age 59½ are generally subject to an extra tax in addition to regular income taxes.

An exception applies to workers who separate from service after they turn 55. In this case, they may make penalty-free withdrawals from that employer’s plan. This exception is plan-specific and does not apply once assets are moved into an IRA.

Later in retirement, the IRS requires that account balances be drawn down over time. You must begin required minimum distributions (RMDs) at a specific age, and they must be taken annually thereafter. The required amount is recalculated each year using IRS life expectancy factors and the account’s prior year-end balance. If you miss an RMD withdrawal, you may face penalties on the remaining amount.

Some plans also offer Roth 401(k) or Roth 403(b) plans. These accounts allow for tax-free withdrawals if eligibility rules are met, but they still carry mandatory distribution requirements, differing from Roth IRAs.

This can influence decisions about rollovers, withdrawal timing, and long-term income planning.

Bottom Line

The type of employer you work for determines which type of plan you have access to, a 403(b) vs. 401(k).

You typically don’t have a choice between a 401(k) and a 403(b). The type of employer you have will determine which type of plan you can access. However, they both function similarly. You choose how much money to contribute from each paycheck, and the money goes into your account pre-tax, with taxes paid when you withdraw it in retirement. There’s also a limit to how much money you can contribute to a 401(k) and a 403(b). Your employer may match a percentage of your contributions. Overall, the differences between the two types of plans may not even impact you much unless you’re older.

Retirement Planning Tips

A financial advisor can be a valuable resource as you plan your retirement. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area. You can have a free introductory call with your advisor matches to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
If you contribute to a pre-tax retirement savings account like a traditional IRA or 401(k), you may want to consider saving money in a Roth account or performing a Roth conversion. Roth accounts are funded with after-tax money. This means your funds grow tax-free from that point on and aren’t taxed when you take them out. Additionally, they aren’t subject to required minimum distributions (RMDs), giving you more tax flexibility in retirement.