401k Plans vs 403b Plans401k Plans vs 403b Plans

401k and 403b plans are both types of retirement accounts. They are offered by different types of employers. 401k plans are an offering from for-profit companies whereas 403b plans are an offering from nonprofits or public schools. In this article, we will go over 401k plans vs 403b plans.

401k Plan Basics

A 401k is a type of qualified account. This means you fund it with money you have not yet paid taxes on. Employers that offer them must follow the Employee Retirement Income Security Act (ERISA) rules. This means employers must provide employees with regular reports and they cannot discriminate in favor of one employee over another. To be able to contribute to a retirement account you must be over 21 and have one year of service in the company.

403b Plan Basics

403b plans are offered by public schools, religious organizations, and tax exempt 501(c)(3) organizations. They are also called Tax Sheltered Annuities. The plans are not subject to ERISA rules. These funds grow tax deferred until withdrawn.

Contribution Limits

In 2025 both types of plans allow up to $23,500 in contributions. If you are over 50 you are given another $7,500 that you can contribute to your plan. You make these contributions from paycheck reductions.

Plan Distributions

You can begin taking distributions, penalty free, at 59 1/2. If you are beneficiary, you can withdraw at any age penalty free.

Required Minimum Distributions

You must begin to take distributions from your 401k or 403b by 72. There is a required minimum amount you will be required to take. Your first RMD must be taken no later than April 1st in the year following the year you turn 72. If you fail to make these distributions, you are subject to a 50% tax penalty on the amount that was not withdrawn.

Setting Up 401k Plans vs 403b Plans

Whether you set up either 401k plans or 403b plans will largely depend on your employer. If you work for a for-profit company, you will set up a 401k and if you work for a nonprofit company you will set up a 403b. Meet with your human resources department to set up your plan and begin contributing.

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