403(b) vs. 401(k) Plans: Benefits & Differences

403(b) plans and 401(k) plans are very similar but with one key difference: whom they’re offered to. While 401(k) plans are primarily offered to employees in for-profit companies, 403(b) plans are offered to not-for-profit organizations and government employees.

403(b) Plan vs. 401(k) Plan Comparison Chart

The following chart compares the contribution limits for 403(b) plans and 401(k) plans.

	403(b) Plans	401(k) Plans
Maximum Annual Contribution	$23,000	$23,000
"Age 50" Catch-up Limit	$7,500	$7,500
Special Catch-up Limit	$15,000 lifetime cap	None
Offered to	Not-for-profit and government employees	Employees at for-profit companies, and some public service employees

The Benefits of 403(b) and 401(k) Plans

Both 403(b) plans and 401(k) plans allow you to contribute money, pre-tax, from your paycheck. That money then grows, tax-deferred, until you withdraw the funds in retirement. At that time, they’re taxed as ordinary income.

Both plans therefore allow you grow your retirement savings without paying annual taxes, unlike regular savings where you pay taxes on the interest they earn.

Both plans may also have Roth contribution options, which allow you to make after-tax contributions — rather than pre-tax contributions — if you want. The contributions are taxed as income, then withdrawn tax-free in retirement.

401(k) plans and 403(b) plans both also have annual contribution limits. See the contribution limits for this year.

Each plan gives you the opportunity to contribute extra "catch-up" payments once you reach age 50. After 50, you can contribute more than the annual contribution limits, every year, to maximize your retirement savings.

403(b) plans have an additional "Special Catch-Up" provision that 401(k) plans do not offer. With a 403(b) plan, you can contribute an extra $15,000 over your career, provided you have been with your employer for at least 15 years. You can get specific calculations that apply to your circumstance by contacting the plan sponsor or recordkeeper.

Can you have a 403(b) and a 401(k)?

Because 401(k) plans are generally offered to employees of for-profit companies, it's unlikely you will be offered both a 403(b) plan and a 401(k). An employee typically has access either to a 401(k) plan or a 403(b) plan, depending on whether they are in a for-profit company or a not-for-profit or public sector organization.

However, there are some circumstances in which an employer will offer both a 403(b) plan and a 401(k) plan. If this is the case, you can contribute freely to both, up to the annual contribution limits for this year.

What's better: 401(k) or 403(b)?

401(k) plans and 403(b) plans offer very similar benefits. As such, one isn’t really better than the other. The main difference is that each plan is offered to employees of different types of companies. Another key difference between the plans is that 403(b) plans also offer a $15,000 catch-up.

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If you’d like to start a MissionSquare plan for your employees, contact us.