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DDonnie · Personal Finance Expertupdated Nov 10, 2026

401k vs 403(b): What's the Real Difference?

Key takeaways
  • The 401k is the retirement plan companies offer. The 403b is the same kind of plan for public schools, hospitals, nonprofits and churches.[1][3][5]
  • In 2026, both have the same limit: $24,500 a year, plus $8,000 from age 50.[5][6] Only the 403b adds up to $3,000 a year after 15 years with the same employer.[7]
  • Example: you invest $500 a month in your 403b from age 40 to 67. At 5% a year, it will be worth about $328,000, or about $1,090 a month if you withdraw 4% a year.
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401k vs 403b at a glance
Topic401k403b
Who offers itcompanies, of any size [3]public schools, hospitals, tax-exempt nonprofits, churches [1][5]
State or city as employerno, unless the plan was set up before May 5, 1986 [4]yes for public schools [1]
What you can contribute in 2026$24,500 a year [6]$24,500 a year [5]
Extra from age 50$8,000 [6]$8,000 [5]
Extra after 15 years with the same employernoneup to $3,000 a year, $15,000 in total [7]
Investmentsthe list of funds chosen by your employer [9]insurance contracts or mutual funds, chosen by your employer [1]
Roth option (tax paid upfront)available [8]available [8]
Withdrawal before age 59½10% extra tax, with some exceptions [10]10% extra tax, with some exceptions [1][10]
1

401k vs 403b: the difference in one sentence

The 401k and the 403b are two employer retirement plans that work the same way: only the type of employer changes.[1] Every payday, part of your salary goes into your retirement account, not your checking account. Example: on a $4,000 monthly salary, you contribute 5%: $200 goes into your plan, $3,800 into your checking account.

If you're new to the 401k, start with our complete 401k guide.

  • 401k: the plan for companies, from startups to large corporations.[3]
  • 403b: the plan for public schools, hospitals, nonprofits and churches.[5]
  • The 403b gets its name from section 403(b) of the U.S. tax code, the Internal Revenue Code.[7]
  • Example: a public school teacher can have a 403b.[1] An employee of a private company can have a 401k.[3]
2

Who offers a 401k, and who offers a 403b?

You don't choose between a 401k and a 403b: your type of employer decides.[1][3]

  • Private company: your employer can offer a 401k, whatever its size.[3]
  • Public school, college or university: your employer can offer a 403b.[1]
  • Tax-exempt nonprofit or church: your employer can also offer a 403b.[1] The Internal Revenue Service (IRS), the U.S. tax agency, calls these nonprofits “501(c)(3)” organizations, after the section that exempts them.[1]
  • State or city: a state or local government can't maintain a 401k, unless the plan was set up before May 5, 1986.[4]
TipYour employer can leave out of the 403b employees who normally work fewer than 20 hours a week. If you work part-time, ask HR whether you qualify.[1]
3

2026 limits: $24,500 in a 401k or a 403b

In 2026, you can contribute up to $24,500 a year from your salary, in a 401k or a 403b.[5][6] The extra amount allowed from age 50, called a catch-up contribution, is also the same in both plans.

401k in 2026403b in 2026Under 50$24,500$24,50050 to 59, or 64 and older$32,500$32,50060 to 63$35,750$35,750Bonus after 15 years with the same employernoneup to $3,000 a yearLimit including your employer's money$72,000$72,000

The 403b has a bonus the 401k doesn't have: the catch-up after 15 years with the same employer.[7]

  • Condition: at least 15 years of work for the same 403b employer, for example a school district or a hospital, and a plan that allows it.[5]
  • Amount: up to $3,000 extra a year, and $15,000 at most over your whole career.[7]
  • Example: you're 45, with 15 years at the same hospital, and your plan allows it. In 2026, you can contribute $24,500 + $3,000 = $27,500.[5][7]
  • From age 50, the two bonuses add up: the 15-year catch-up counts first, then the age-50 one.[7] Example: $24,500 + $3,000 + $8,000 = $35,500.
The word to know
Catch-up contribution : A catch-up contribution is an amount you can contribute on top of the normal limit, starting at a certain age or, in a 403b, after 15 years with the same employer. Example: at 52, you contribute $24,500 plus an $8,000 catch-up, for a total of $32,500.
4

Investments: what you can put in a 403b

A 403b can only hold two kinds of investments: an insurance contract or mutual funds.[1]

  • Insurance contract (annuity): your money is invested by an insurance company.[2]
  • Mutual funds: your money buys shares of a basket of stocks or bonds, through a dedicated account.[1][2][9]
  • In both plans, your employer sets the list: you only choose from the investments it offers.[1][9]
  • In a 401k, the law requires your employer to choose prudent, diversified investments and to keep an eye on their fees.[9] This law is called the Employee Retirement Income Security Act (ERISA), the main federal law that protects employees' retirement savings.[9]
  • Some 403b plans are exempt from ERISA: those of public employers, some churches, and those that meet conditions set by the U.S. Department of Labor.[1]
Watch outCheck the fees of each investment on your list. U.S. Department of Labor example: $25,000 invested for 35 years at 7% grows to $227,000 with 0.5% in fees, but only $163,000 with 1.5% in fees.[9]
5

Tax, Roth option and withdrawals: the same rules

On taxes, a 403b works like a 401k: your contributions aren't taxed until you withdraw them.[1]

  • Traditional version: you contribute before tax, then you pay tax when you withdraw your money.[1]
  • Roth version, if your plan offers it: you pay tax before contributing, then your withdrawals can be tax-free. The Roth account exists in a 401k and in a 403b.[8]
  • Your employer can add money to your account, in both plans.[1][3]
  • Withdrawal before age 59½: you pay 10% extra tax, with some exceptions, in both plans.[1][10] Example: you withdraw $10,000 at age 45, you pay $1,000 in extra tax, then income tax.
6

How much your 403b could pay you in retirement

What your 403b pays you depends on your contributions, their return and the number of years. The math is the same for a 401k.

  1. Example: you're 40, you take home $4,000 a month and you spend $3,500. You invest the remaining $500, or $6,000 a year.
  2. From 40 to 67, you contribute for 27 years: $6,000 × 27 = $162,000 out of your own pocket.
  3. At 5% a year, your 403b is worth about $328,000 at 67.
  4. If you withdraw 4% a year, your 403b pays you about $13,100 a year, or about $1,090 a month.

This is a simulation, not a promise: your actual return can be higher or lower.

7

Changing jobs: moving from a 403b to a 401k

Leaving a school for a company? Your money can move from your 403b to your new 401k, and the other way around.[2]

  • What can move: only the distributions the IRS allows you to roll over from one plan to another.[2]
  • Example: you have $40,000 in your hospital's 403b. You join a private company: that $40,000 can move to your new 401k.
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Your questions

403b versus 401k: which one is better?

Neither is better by nature: you take the one your employer offers. Instead, compare the fees of the investments on your list and the money your employer adds.

403b vs 401: which “401” are we talking about?

Here, “401” means the 401k, the retirement plan companies offer. The 403b is its equivalent for public schools, hospitals and nonprofits.[1][5]

Can you have a 401k and a 403b at the same time?

Yes, for example if you have two employers. But your contributions to both plans count together toward the $24,500 limit in 2026.[2][6]

401k or 403b, your employer plan is only one part of your retirement. Want to see the whole picture?
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Sources

  1. IRC 403(b) tax-sheltered annuity plans · Internal Revenue Service (IRS) · January 30, 2026
  2. Retirement plans FAQs regarding 403(b) tax-sheltered annuity plans · Internal Revenue Service (IRS) · August 10, 2026
  3. 401(k) plan overview · Internal Revenue Service (IRS) · August 4, 2026
  4. Comparison of governmental 457(b) plans and 401(k) plans: features and corrections · Internal Revenue Service (IRS) · August 1, 2026
  5. Retirement topics: 403(b) contribution limits · Internal Revenue Service (IRS) · March 16, 2026
  6. Retirement topics: 401(k) and profit-sharing plan contribution limits · Internal Revenue Service (IRS) · April 8, 2026
  7. 403(b) plans: catch-up contributions · Internal Revenue Service (IRS) · June 28, 2026
  8. Retirement plans FAQs on designated Roth accounts · Internal Revenue Service (IRS) · August 2, 2026
  9. A Look at 401(k) Plan Fees · U.S. Department of Labor, Employee Benefits Security Administration (EBSA)
  10. Retirement topics: Tax on early distributions · Internal Revenue Service (IRS) · December 11, 2025

This article is for education only. It is not investment advice: investing carries a risk of loss.

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