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

There are some key differences between 403(b) plans and 401(a) plans. Below, we cover the basics of each plan, look at the differences, and explore the benefits of each.

403(b) Plan vs. 401(a) Plan Contribution Comparison

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

	403(b) Plans	401(a) Plans
Maximum Annual Contribution	$23,000	$69,000
"Age 50 Catch-Up" Limit	$7,500	None
"Special Catch-Up" Limit	$15,000 lifetime cap	None

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

Both 403(b) plans and 401(a) plans allow you to make tax-deferred contributions to your retirement. This allows you to make pre-tax contributions from your paycheck, reducing your overall tax burden. You only pay taxes on the funds once you begin withdrawing them in retirement.

In the interim, the money grows tax-free and can accumulate into a substantial amount over the course of your career. Both 403(b) plans and 401(a) plans can be more effective savings vehicles than a regular savings account, which typically pays little interest that is taxable each year.

Many 401(a) plans and some 403(b) plans also include employer contributions. For both plans an employer may offer fixed-percentage contributions or dollar amounts even if you don’t contribute. Employers also have the option to match your own contribution to your account either by a certain percentage or dollar amount. For example, if you contribute 10% of your paycheck to a 403(b) and your employer offers a match of 4%, that means your employer will contribute an amount equal to 4% of your pay.

Differences Between a 401(a) and a 403(b) plan

While 403(b) plans and 401(a) plans operate in a similar way, there are key differences.

First, they have different annual contribution limits. While contribution limits for retirement plans change every year, the annual limit for a 401(a) plan is higher than a 403(b) plan. See the contribution limits for this year.

401(a) plans also don’t have catch-up options. But with a 403(b) plan, you have the opportunity to make extra payments outside the annual maximum contribution limit, once you reach age 50. Furthermore, if you have 15 or more years of service with an eligible employer, you may be able to make additional catch-up contributions of up to $3,000 a year; capped at a total of $15,000 across your lifetime.

The participation rules for each plan also can be very different.

403(b) plans are entirely voluntary. You can choose to contribute nothing, or 6% or 10% (up to the annual contribution limit) to your 403(b) – whatever you think is best. You can also change your contribution amounts as often as you like throughout the year.

401(a) plans are funded differently. Some employers require their employees to participate in a 401(a) plan and to contribute an amount set by the employer. In some cases, once you make your contribution election to the plan, you can’t change it; although the plan may allow you to make voluntary after-tax contributions on top of the required amount.

Can You Have a 403(b) and a 401(a)?

It’s possible that a single employer offers both a 403(b) and a 401(a) plan to its participants. In this case, you can contribute up to the annual maximum contribution limit for each plan.

403(b) vs. 401(a): Which is better?

If an employer offers both a 401(a) plan and a 403(b) plan, there are a few things to consider. First, a 403(b) plan may potentially offer a plan participant more flexibility: You can opt out of participating or change your contributions with each paycheck if you like, whereas a 401(a) may have mandatory contributions set by your employer.

On the other hand, a 401(a) plan has a much higher contribution limit. If you want to maximize your retirement savings by being able to contribute more than the annual maximum allowed in a 403(b) plan, you may want to consider a 401(a) plan.

Ultimately, each person’s circumstances are different, and your choice will rely on a range of factors.

If you want to learn more about MissionSquare 401(a) or 403(b) plans, contact us.

Start a Plan

MissionSquare offers both 401(a) and 403(b) plans. If you’re an employer considering offering a 403(b) plan or a 401(a) plan to your employees, contact us.