403(b) and 401(k)aretax-advantagedemployer-sponsoredretirement plansthatcanhelp people save for retirement.Theyarevery similar,with several differences to keep in mind.
403(b):Offered to workers in thepublic sector,such as501(c)(3)non-profit employees(religious and charitable), public schools, churches, and governmentagencies.
401(k):Primarily offered to workers in theprivate sector(for-profit).ii
These programs helpemployeesinvestduring theirworkingyears,whether inthe public or private sector.Mostwill haveaform ofadefined benefit plan: paying intoSocialSecurity in the private sector orqualifyingfor a specifiedpensionin the public sector. Teachers have a pension through the California State Teachers’ Retirement System (CalSTRS),wherethe defined benefit plans are notformulatedto replaceone’s grossincome during retirement. This is where 403(b) and 401(k) retirement plans can bebeneficial to supplement the reduced retirement incomestream.iv
There are similarities and differencesbetween 403(b)s and 401(k)s.When it comes to these plans,people might ask this question:
Can you have both a 403(b) and a 401(k)?
Yes, if you are employed by multiple employers, you may be eligible to contribute to both. The catch is that your total employee contributions across all plans cannot exceed the total annual limit of $23,500 (2025).v
Let’sdig into some of the similarities and differences:
Similarities:
Withdrawal restrictions:Both accountsdo notpermitindividuals towithdrawthe fundsuntil retirementage(59 ½) without incurring a 10% penalty,unless there are specific reasons that are allowed byregulations.vi
Contribution Limits:Contribution limits are the same for both in 2025, $23,500.vii
Catch-up Contributions:Both plans give individuals aged 50 and over theoptionto makeadditionalcatch-up contributions. In 2025, thiscontributionlimit is$31,000which allows for anadditional$7,500. Also, participants aged 60-63have a contribution limit of $34,750 which allows for anadditional$11,250viiias catch-up contributions.
Requiredminimum distributions (RMDs):Both require you to start taking RMD distributions at age 73 (or 75, depending on your date of birth).ix
Tax Advantages:Both offer tax benefits that allow for pre-tax contributions that may lower your current taxable income or Roth contributions (after-tax),which allow for tax-free withdrawals in retirement.A financial professional can work with you todeterminehow these canbenefityou.
Hardship Withdrawals and Loans:Bothplans may allow hardship withdrawals and loans depending on your circumstances, plan guidelines, and IRS rules and regulations.One exampleis what is called the “rule of 55”allowingparticipants of a 401(k) and/or403(b) to take withdrawals early if you leave yourjob on or after the year you turn55.x
Differences:
Eligibility:Eligibilityis based on employer typeas previouslystated.
Employer Matching:Though bothmayoffer employer matching, 401(k) plans often offer broader investment choices and more robust employer matching.
Special Catch-up Contributions (403(b) only):403(b) plans may offer unique catch-up contribution provisionsfor long-term employees, such asthe 15-year catch-up contribution.
Learning to live on a little bit less now, for future growth
The potential downsideisretirement plans are funded through payroll deductions, meaning thatan employee is using part of his/her income to fund the future.Therefore, it does mean smaller take-home paynow, but significant potentialbenefits downthe road.
Schedule a meeting with a financial professional
What we offer is education and financial guidance for our clients.Mostdo not have investment experience and are therefore less likely toparticipatewithoutassistanceand understanding.That’swhy we are here! We not only know the details of an employee’s pension but also the 403b and/or 401k.Don’twait. Schedule a consultation with us today.
This article was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this article.
Important Disclosures:This content was prepared by LPL Marketing Solutions