Quick takeaways
Generally, any business can offer a 401(k) plan. However, only certain types of organizations can offer a 403(b) plan.
Both types of plans allow for employer contributions.
403(b) plans generally have fewer investment options than 401(k) plans.
Some organizations may offer both a 403(b) and a 401(k) plan.
As an employer designing a retirement benefits program, you likely have many priorities to juggle. You may be thinking: What types of plans will my employees want? What will be affordable for the company? What will be most manageable?
Luckily, if you're considering offering 403(b) or 401(k) plans, we've got you covered. The only thing you need to know now is that both 401(k) and 403(b) plans are employer-sponsored tax-advantaged retirement savings plans. We'll dive into the rest below.
What is a 401(k) plan?
A 401(k) plan is a defined-contribution retirement savings plan many businesses offer their employees. The tax code that ushered in 401(k) plans was enacted in 1978. At a high level, 401(k) plans help individuals save for retirement, while also having rules to help make the plans fair for everyone. Generally, any employer can sponsor a 401(k) plan except governmental organizations.
401(k) plans are typically subject to ERISA rules, which are similar to IRS rules but have a few additional requirements. The rules can be pretty technical, which is why it is worth considering having a 401(k) provider like Gusto Retirement to help you craft your plan and keep it compliant.
What is a 403(b) plan?
A 403(b) plan, sometimes called a tax-sheltered annuity or TSA plan, is a retirement plan that can only be offered by public schools, churches, certain hospitals, governmental organizations, and registered 501(c)(3) charities. 403(b) plans are also defined contribution plans. 403(b) plans are sometimes called an "annuity plan" because originally employees could only invest in annuities. However, that changed in 1974 when the government added the ability to also invest in mutual funds via a custodial account.
Generally, all employees must be allowed to contribute to a 403(b) plan. This is because of something called universal availability, which sets strict limits on who can be excluded from the plan for the purpose of making elective deferrals. These exclusions are outlined by the IRS in detail if you want more information. A 403(b) plan can have eligibility requirements for any employer contributions.
Similarities between 401(k) and 403(b) plans
Beyond both being employer-sponsored tax-advantaged retirement savings plans, 401(k) and 403(b) plans have many other similarities. These include:
Contribution limits: These plans have similar contribution limits. In 2026, the max you can save with a 401(k) or 403(b) plan is $24,500 annually, plus $8,000 in catch-up contributions for those age 50 and up — and if you're between 60 and 63, you can contribute up to $11,250 in catch-up contributions instead.¹
Tax treatment: A traditional 403(b) has the same tax advantages as a traditional 401(k), meaning an employee can contribute pre-tax funds, and they will be taxed upon withdrawal.² A Roth 403(b) is like a Roth 401(k), where an employee can contribute post-tax funds, but they generally won't be taxed upon withdrawal (as long as the distribution is qualified).³
Early withdrawal penalties: Both plans are subject to early withdrawal penalties if you withdraw funds before age 59 ½ without a valid early withdraw penalty exception.
Required minimum distributions: Both plans typically require participants to take required minimum distributions starting at age 73 (or 75, depending on your birth date).
Key differences between 401(k) and 403(b) plans
Some key differences exist between 403(b) and 401(k) plans. These include:
Availability: As discussed above, 403(b)s are only available to 501(c)(3) organizations, public schools, certain state governmental organizations, certain hospitals, and churches. 401(k)s are available to private sector businesses, including nonprofits. Generally, most governmental organizations cannot offer a 401(k) plan. Some organizations, like large universities, may even offer both a 403(b) and a 401(k).
Investment options: 403(b) plans are a bit more limited in investment options than 401(k) plans. 403(b)s can only offer annuities, and mutual funds via a custodial account. 401(k)s are permitted to have more investment options, including stocks, bonds, and mutual funds.
ERISA coverage: Most 401(k) plans are subject to ERISA rules (exceptions exist for grandfathered governmental plans and owner-only plans, for example). 403(b) plans offered by churches, and state governmental organizations are generally exempt from ERISA coverage unless they specifically elect otherwise.
Special contribution rules: Some 403(b) plans allow employees with 15-years or more of service to make additional catch-up contributions. Check out the IRS rules on this if you'd like to learn more.
401(k) vs 403(b) compared
401(k) | 403(b) | |
Availability | Any non-governmental organization | Only public schools, churches, certain hospitals, and 501(c)(3) organizations can offer a 403(b) |
Employee contribution limits | In 2026, $24,500 annual limit, plus a $8,000 catch-up for those age 50 and up — or $11,250 for those age 60–63. | In 2026, $24,500 annual limit, plus an $8,000 catch-up for those age 50 and up — or $11,250 for those age 60–63 and a separate special 15-year catch-up. |
Employer contributions | Employers may make contributions based on whatever percentage or method they deem appropriate and is allowed within their plan rules. | Employers may make contributions based on whatever percentage or method they deem appropriate and is allowed within their plan rules. Some employers may choose not to make contributions in order to avoid ERISA coverage, among other reasons. |
Eligibility - employee contributions | Plan administrators can set eligibility criteria. Age - no higher than 21 Service - no more than 1 year Classes of employees can be excluded but it may subject the plan to additional nondiscrimination testing | No age or service requirements are allowed. All employees must be eligible with a few exceptions including: Part-time employees Student employees Nonresident aliens Employees eligible for another plan sponsored by the same employer Employees who will earn less than $200 a year |
Eligibility - employer Contributions | Plan administrators can set eligibility criteria. Age - no higher than 21 Service - no more than 2 years Classes of employees can be excluded but it may subject the plan to additional nondiscrimination testing | Plan administrators can set eligibility criteria. Age - no higher than 21 Service - no more than 2 years Classes of employees can be excluded but it may subject the plan to additional nondiscrimination testing |
Nondiscrimination testing | Subject to Average Deferral Percentage (ADP), Average Contribution Percentage (ACP), Coverage, 401(a)(4) and Top Heavy testing. | Exempt from Average Deferral Percentage (ADP) and Top Heavy testing. Coverage only applies to employer contributions. Subject to Average Contribution Percentage and 401(a)(4) testing. |
Can an employee roll 401(k) funds into a 403(b) and vice versa?
As you think about crafting a retirement plan that works for your company and your employees, you may consider rollovers. It's a question that can arise, especially if you're hiring new employees moving from the private to the public sector. So, let's take a closer look.
Employees may rollover funds from a 401(k) into a 403(b) and vice versa if both plans allow it. If done correctly, they won't owe taxes on this movement.⁴ However, if the employee has "mixed funds" (meaning both pre-tax and after-tax contributions), they must pay extra attention so the funds go to the right type of account so they don't owe additional taxes.
It's always a good idea to encourage your employees to get expert financial advice, especially when it comes to their retirement goals.
Choosing the right plan
If you're thinking of offering a 401(k) or a 403(b), the decision may already be made for you if you run a for-profit business. In that case, you only have the option of offering a 401(k). But if you're at the helm of a 501(c)(3) organization or church, you may be able to choose between a 403(b) or a 401(k) — or both. Some factors you may want to consider are the availability of investment options and your employees' stated preferences, if they have any.
A final important point is that it is possible to offer both plans. This may be a good option for large organizations that want to offer their employees a wide array of options.
As you begin to plan out your company's retirement benefits offerings, it can be a good idea to contact someone with expertise to confirm you are not only compliant, but also crafting a benefits package that works well for you and your team. Don't worry — Gusto Retirement can help.
The information provided in this blog post is accurate and up-to-date as of May 2026. IRS plans and limits are subject to change. Please consult a Financial Professional for the most current information regarding your specific financial situation.
FAQs
What is the main difference between a 401(k) and 403(b)?
A 401(k) is available to any non-governmental organization, while a 403(b) is only available to public schools, churches, and 501(c)(3) nonprofits.
Can I roll over a 401(k) into a 403(b)?
Yes, you can roll over funds between these plans if both plans allow it. If done correctly, this can typically be done without owing taxes.
Which plan has more investment options?
401(k) plans can legally offer more investment option types including stocks, bonds, and mutual funds, while 403(b) plans can legally only offer annuities and mutual funds.
Do both plans have the same contribution limits?
Yes, both plans have similar contribution limits — $24,500 in 2026, plus $8,000 in catch-up contributions for those 50 and older (or $11,250 for those age 60–63). But 403(b) plans have an additional type of catch-up called the special 15-year catch-up.
