Most Americans are familiar with the 401(k) but not so much its older sibling—the 403(b). We asked David Blanchett, head of retirement research at Prudential and Portfolio Manager at PGIM, for a “403(b) vs 401(k) explainer.” What are the differences? Who is eligible for each? Which is better?
| 401(k) | 403(b) | |
| Available from… | Most types of private employers | Limited to nonprofit, religious, some health-care and educational institutions |
| Employer-Sponsored | Yes | Yes |
| Defined Contribution | Yes | Yes |
| Contribution Limits in 2026 | $24,500 | $24,500 |
| Between Ages 50 and 60 | Additional $8,000 | Additional $8,000 |
| Between 60 and 63 | Additional $11,250 | Additional $11,250 |
| With the Same Employer for 15 years | Additional $3,000/year | |
| Taxes | Contributions are income tax-deferred…withdrawals after age 59 1/2 are taxed as ordinary income. (Note: Contributions to Roth 401(k)s are taxed…withdrawals are not) | Contributions are income tax-deferred…withdrawals after age 59 1/2 are taxed as ordinary income (Note: Contributions to Roth 403(b)s are taxed…withdrawals are not) |
| Penalties | For withdrawals before 59 1/2 | For most withdrawals before 59 ½—there are exceptions |
| Administration | Managed by employer, typically a single provider | Typically multiple vendors |
| Investments | Mutual Funds and Collective Investment Trusts (CITs) | Mutual Funds and Annuities |
| Fees | Typically higher than 401(k) |
What Is a 401(k)?
401(k)s are employer-sponsored defined-contribution retirement plans. “Defined contribution” means that the plan specifies how much money can be contributed to the account, not how much it will be worth when you retire. And “employer-sponsored” simply means that the plan is offered through your job. The money that gets added to your account comes from your paycheck, although some employers also match some portion of what you put in.
While the employer automatically moves your 401(k) contributions from your paycheck into the fund, you get to determine how much. For 2026, the IRS allows you to put up to $24,500 into your 401(k). If you’re between ages 50 and 60 and “catching up” on retirement saving, you can contribute an additional $8,000. If you’re between 60 and 63, you can contribute $11,250 on top of the $24,500 for a total 2026 contribution of $35,750.
401(k)s provide attractive tax benefits. If you’re making traditional deferrals, the money you contribute is put into the fund before you pay income tax on it, reducing your taxable income. Example: If you made $100,000 in a year and contributed $20,000 to your 401(k), your taxable income for that year would drop to $80,000. The money still will be taxed when you retire and withdraw it, but it grows tax-free until distributions. This is typically beneficial since retirees usually have lower tax brackets compared to earning years.
Savers are discouraged from tapping into their 401(k)s before retirement. The IRS penalizes you for making withdrawals before age 59 ½—you’ll pay income tax on the early withdrawal plus a 10% penalty unless certain provisions are met
What Is a 403(b)?
People are often surprised to learn that 403(b)s actually predate 401(k)s. The 403(b) was legislated into existence in 1958 as a way for teachers and nonprofit employees to save for retirement, while 401(k) legislation passed in 1978.
For various reasons, the 401(k) quickly became the more popular employer-sponsored plan, and it evolved and modernized much more quickly than did the 403(b). Today, only about 9.1 million Americans participate in 403(b) plans, with assets totaling about $1.5 trillion. By contrast, some 70 million Americans actively participate in 401(k) plans, with about $10 trillion of assets invested in the funds.
Structurally, 403(b)s are very similar to 401(k)s. Every detail in the section above about 401(k)s applies to 403(b)s. Both are employer-sponsored, both are defined-contribution plans, and even the annual contribution limits and early-withdrawal penalties are the same. But there is one minor difference—savers with 403(b) plans who have stayed with the same employer for 15 or more years may contribute an additional $3,000 per year on top of the other catch-up provisions.
403(b) vs. 401(k)
Despite the similarities, the 15-year rule is not the only difference between 401(k) and 403(b) plans…
Original intent
403(b) plans were first created as something like an employee-driven savings account (in fact, they were once called “tax-sheltered annuities”). The 401(k) was designed, regulated and culturally positioned as a collaboration between employer and employee. These competing origin stories help explain some of the other differences between the two types of plans.
Employers and employees
Most full-time jobs in the US offer 401(k)s, especially larger companies, while 403(b)s are limited to nonprofit, religious and some health-care and educational institutions.
Matches
Employer-matching contributions are more common with 401(k)s than with 403(b)s, although there’s no rule prohibiting 403(b) providers from matching employee funds.
Administration
401(k)s typically are designed, administered and managed by the employer with a single provider. 403(b)s are more loosely administered, often involving multiple vendors. The 401(k) structure specifies that the employer bears a fiduciary responsibility to act in participants’ best interests. With 403(b)s, this has traditionally not been the case, which potentially results in higher fees.
Investments
401(k)s usually offer mutual funds and collective investment trusts, while the investment menus of 403(b)s often are limited to mutual funds and annuities. Collective Investment Trusts (CITs), pooled investments designed specifically for retirement that generally offer lower fees than mutual funds. Currently, 403(b)s are not allowed to invest in CITs, which partially explains the normally higher fees paid by 403(b) participants.
Which Is Better?
Neither plan is categorically better. And it’s rare to have a choice between the two, since the plan you are offered is determined by your employer. In rare cases, an employer will allow you to choose. If that happens, look closely at fees, investments and savings potential before making a choice. Note: If you have access to both a 401(k) and a 403(b), elective deferrals are aggregated.
