Money·4 min read

401(k) vs. 403(b): The Pros, Cons, and Key Differences

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Design: theSkimm | Photo: iStock
October 11, 2022

Whether you’re a full-time employee or on the job hunt, chances are your retirement goals are on your mind. And you might think a 401(k) is the only road to success. But depending on the industry or field you work in, that’s not always true. Enter: The 403(b) retirement plan. If you’re now wondering what to pick between a 403(b) vs 401(k), we rounded up the differences, pros, and cons of each retirement option. 

What is a 403(b) and a 401(k)?

Both a 403(b) and a 401(k) are retirement plans sponsored by your employer.And they’re similar in lots of ways, including when it comes to….


Both plans come with tax advantages. With contributions coming from pre-tax dollars (aka your gross pay).And the two retirement plans have the same contribution limits. Read: $20,500 for 2022.   This money can usually be deducted automatically from your paycheck. Oh, and even if you’re enrolled in one (or both) of these plans, you can also contribute to additional retirement plans (like a Roth IRA).


A 403(b) and a 401(k) also have the same penalties. So if you decide to withdraw before you hit the retirement age (59 ½), you’ll face a 10% penalty fee. P.S. You'll also be penalized if you don't start taking out money by the time you turn 72. 

 But just because they have major similarities doesn’t mean they’re exactly the same. 

What makes a 403(b) plan different from a 401(k)?

Mainly who it’s available for. You can only access a 403(b) retirement plan if you work in a tax-exempt industry. Think: Public schools and universities, non-profits, and religiously-affiliated workplaces like a church, mosque, or synagogue. Meanwhile, 401(k)s are for employees working in for-profit industries. So unless you’re working in both industries (friendly reminder: don’t burn yourself out), you might not even have a choice for what you can access. Here’s a closer look at the pros and cons to help you decide what works for you…

Pros and cons of a 403(b)

If you go with a 403(b) for retirement, you can vest funds sooner than you can with a 401(k). Meaning: As soon as you start contributing to the account, you may be able to make withdrawals, borrow dollars from your account, or take the balance with you if you leave the company. On the downside, 403(b) investment options tend to be more limited.Typically, you can invest in mutual funds or annuities, but that’s about it.Plus, employers don’t normally offer to match your contributions.

Pros and cons of a 401(k)

A 401(k) takes longer to vest funds. And the exact time frame depends on your employer's vesting schedule. They could go the cliff vesting route — which means you get full access to your money after a set time period. Or, they could go the graded vesting route — which means you'll gradually get ownership of your funds throughout your employment. (Pro tip: Talk to your HR team about any questions you have about vesting your 401(k).) The good news: Many employers will match contributions, so you'll essentially get free money.

How do I know if I can choose a 403(b) vs 401(k) for retirement? 

Start with your employer. Because if you aren’t in a tax-exempt industry, a 403(b) isn’t an option. If you are in a tax-exempt industry, think about what you expect to withdraw during retirement. While there’s no way to know exact numbers, try to estimate how much you’ll need before it's time to start making withdrawals. If you think you’ll need immediate access to your contributions, a 401(k) might not be the best choice.

If you decide to switch things up from the for-profit world to the nonprofit world (or vice versa), you can always roll your balance over to the new employer or an IRA. Your move: think about your retirement goals and let them lead the way when it comes to choosing your retirement plan.


A 401(k) may be the more popular retirement plan. But that doesn’t mean it’s right — or even an option — for everyone. If you're unsure of your options or how to maximize them, reach out to your HR rep for more info. Psst..even if you can’t go with a 403(b) vs 401(k), you still have other retirement options.

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