401(k) plans are for private, for-profit businesses. 403(b) plans are for tax-exempt organizations and non-profits.
The 401(k) and 403(b) are both tax-advantaged retirement savings plans. Both accept payroll deductions and help employees grow their retirement nest eggs through investment options like stocks, mutual funds, ETFs, and other vehicles. Both allow for employer match or profit-sharing contributions at the employer's discretion, up to 25% of eligible payroll. Loans can be taken out from both plans if necessary, offering a low-cost lifeline for buying your first home, paying college tuition, or staying afloat during emergency situations.
Differences Between 401(k) and 403(b)
The plans differ in terms of:
Plan Sponsors
ANY employer, big or small, can sponsor a 401(k) if they choose to do so. On the other hand, only non-profit companies, religious organizations, school districts, and governmental organizations may have a 403(b) plan.
Employee Eligibility
To be eligible for a 401(k), participants must generally be at least 21, with at least one year of service and 1,000 hours or more of service per year. Union employees entered into collective bargaining agreements and non-resident aliens are generally ineligible. Individual employers can mandate when employees become "vested" in the plan.
To be eligible for a 403(b), there are no age or annual hour requirements, but employees must generally work more than 20 hours per week. Professors on sabbatical, union employees, and non-resident aliens are generally excluded. Only certain types of industries may have a 403(b).
Deductions
The 401(k)'s employer contributions are deductible for employers, whereas 403(b) employer contributions are tax-deferred for employees. Both accounts are pre-tax and tax-deferred for employees.
Contribution Limits
For 2026, the employee deferral limit for both 403(b) and 401(k) plans is $24,500, with an additional $8,000 catch-up contribution allowed for participants age 50 and older. Employees ages 60 to 63 can contribute an even higher "super catch-up" of $11,250 under the SECURE 2.0 Act, if their plan allows.
The 403(b) plan also allows workers with at least 15 years of service at the same employer to add another $3,000 to their limit each year, up to a $15,000 lifetime cap—a unique feature not available in 401(k) plans.
The total combined employee and employer contribution limit for both plan types is $72,000 in 2026 (or $80,000 with catch-up contributions for those 50 and older).
Investment Options
A 401(k) account typically allows for a wide range of investments, including index funds, bond funds, large-cap and small-cap funds, real estate funds, foreign funds, and more—though available choices may be limited by the employer or broker selected. By comparison, 403(b) investment options have historically been more limited. In the past, employees could only invest in an annuity—a financial product offered through insurance companies that provides fixed payments to the annuity holder. While mutual funds are now available in many 403(b) plans, not all employers offer them.
Administration
In the past, 403(b) plans were exempt from certain administrative processes that applied to 401(k) plans, lowering overhead costs. However, today most 403(b) plans are required to follow similar ERISA compliance requirements, so there isn't much difference in administration between the two plan types.
Cost
Overall plan costs are determined by the types of investments selected, the level of service, and the plan provider or broker. Certain types of assets, like variable annuities, may have higher fees that cut into your earnings. It's worth exploring alternatives if you 're looking to reduce costs.
A Note on the Roth Catch-Up Rule
Beginning in 2026, the SECURE 2.0 Act requires employees who earned more than $150,000 in the prior year to make their age-based catch-up contributions as Roth (after-tax) deferrals. This rule applies to both 401(k) and 403(b) participants, so check with your plan administrator to make sure your plan supports Roth contributions if you fall above that income threshold.
Which One Is Better?
Both options are great ways to save for retirement. However, if you find that investment choices are too limited or costs too high in a 403(b), switching to a 401(k) is always an option for eligible employers.
Since 1999, Ubiquity has offered flat-fee small business 401(k) plans with full transparency and no AUM fees or hidden costs. You can work with the broker of your choice to select investment options, while we handle plan administration and provide full employer and employee support.
