What’s the Difference Between a 401(k) and a 403(b) Plan?

What’s the Difference Between a 401(k) and a 403(b) Plan?

If you’re running a business or nonprofit and thinking about offering a retirement plan, you’ve probably come across two common options: the 401(k) and the 403(b). While they may seem similar at first glance, there are some key differences that can impact which one is right for your organization.
Let’s break it down in simple terms so you can make the best choice for your team—and your bottom line. 

What is a 401(k)? 

A 401(k) is a popular, employer-sponsored retirement plan that allows both you and your employees to contribute pre-tax dollars toward retirement. In 2025, the annual contribution limit is $23,500, with an extra $7,500 in catch-up contributions for those aged 50 and older. 
Any type of business can sponsor a 401(k) plan. It’s flexible, widely used, and offers a broad range of investment options.

What is a 403(b)? 

A 403(b) plan works similarly to a 401(k), but it’s designed specifically for tax-exempt organizations like: 

• Public schools and universities 
• Churches and religious groups 
• Nonprofit hospitals 
• Charitable organizations 

The contribution limits are the same as a 401(k), and both employers and employees can contribute. However, only nonprofits and certain public sector employers can offer a 403(b). 

The Differences Between a 401(k) vs. a 403(b)

While both plans help employees save for retirement, here are the main differences business and nonprofit leaders should know: 

1. Who Can Offer the Plan 

• 401(k): Any for-profit business 
• 403(b): Only tax-exempt organizations

2. Compliance Requirements 

• 401(k) plans must pass annual IRS tests like the ADP and top-heavy tests to ensure fairness. 
• 403(b) plans are generally exempt from these tests unless they’re covered by ERISA (Employee Retirement Income Security Act). 

3. IRS Form 5500 Filing 

• 401(k): Must file Form 5500 every year. 
• 403(b): Only required if the plan is ERISA-covered. 

4. Investment Options 

• 401(k): Offers a wide range—stocks, bonds, ETFs, mutual funds, and more. 
• 403(b): Limited to annuities and mutual funds. 

How Are 401(k) and 403(b) Plans Similar? 

Despite the differences, these plans share a lot in common: 

• Same annual contribution limits 
• Both allow Roth and pre-tax contributions 
• Early withdrawals (before age 59½) usually come with a 10% penalty 
• Both are great tools for long-term retirement savings 

How Do 401(k) and 403(b) Plans Compare Against Each Other? 

The chart below outlines how 401(k) plans compare to 403(b) plans: 

Which Type of Retirement Plan Is Best For My Non-Profit Organization? 

If you run a nonprofit, you may be able to choose between a 401(k) and a 403(b). So how do you decide?  

It depends on your goals, your workforce, and how much flexibility you want in the plan design and investments. A 403(b) might be simpler and have fewer compliance requirements, but a 401(k) offers more customization and investment variety. 

The best way to decide? Talk to a retirement plan advisor who understands the nonprofit space. They can help you weigh the pros and cons and choose the plan that fits your organization’s needs. 

We’re Here to Help 

At Fisher\SMB we specialize in helping nonprofits and small businesses build retirement plans that work—for leadership and employees alike. Whether you’re starting from scratch or upgrading your current plan, we’ll help you navigate the options and make a confident decision. 
 Let’s talk about your retirement plan strategy today.