Theyâre almost twins.
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If youâre a public school teacher or work for a nonprofit organization, thereâs a good chance your workplace retirement plan is a 403(b). Although these plans are less familiar than 401(k)s, theyâre hardly a niche benefit: 403(b) plans held about $1.5 trillion in assets as of March 31, 2026, according to the Investment Company Institute.
Key Points
- 403(b) plans are tax-advantaged workplace retirement plans offered to public school employees and certain nonprofit and church employees.
- 403(b) plans are similar to 401(k) plans in many practical ways.
- Some 403(b) plans are exempt from federal ERISA requirements.
Though 403(b) and 401(k) plans work similarly in many ways, there are some important differences.
Like a 401(k), a 403(b) gets its name from the section of the federal tax code that created it. Itâs a tax-advantaged workplace retirement plan available to certain public school, nonprofit, and church employees. Although 403(b) plans are also known as tax-sheltered annuity plans, they can offer both annuities and mutual funds as investment options.
Employees who can contribute to 403(b) plans include:
- Eligible employees of 501(c)(3) tax-exempt organizations.
- Public school employees, including employees of elementary and secondary schools, state colleges and universities, and public school systems organized by Native tribal governments.
- Eligible employees of churches.
- Ministers, whether self-employed or working for tax-exempt organizations.
Similarities between 403(b) and 401(k) plans
From a practical standpoint, these two types of retirement plans have many similarities:
- Tax-advantaged savings. An employee can contribute pre-tax income; no tax is due on earnings until withdrawals are made.
- Contribution limits are $24,500 for the 2026 tax year. Workers ages 50 and older can make an additional $8,000 catch-up contribution. For those ages 60 to 63, there is a higher catch-up limit: $11,250.
- Employers may offer a Roth option, where contributions are taxed as ordinary income and qualified withdrawals are tax free.
- Withdrawals made before age 59œ are generally subject to a 10% early withdrawal penalty (with certain exceptions).
- Employees who leave their jobs during or after the year they turn 55 can generally take withdrawals without the 10% early withdrawal penalty, although income taxes may still apply.
Key differences between 403(b) and 401(k) plans
Unlike most private-sector 401(k) plans, some 403(b) plans are exempt from the Employee Retirement Income Security Act (ERISA), which establishes federal standards for employer-sponsored retirement plans.
403(b) catch-up contributions for longtime employees
Some 403(b) plans offer a special catch-up contribution for employees with at least 15 years of service with the same eligible organization. If the plan allows it, the additional contribution is the lowest of:
- $3,000, or
- $15,000, minus previous catch-up contributions made under this rule, or
- $5,000, multiplied by the employeeâs years of service, minus elective deferrals made in previous years.
The special catch-up is limited to $15,000 over an employeeâs lifetime.
Some employee-funded 403(b) plans arenât subject to ERISA if participation is voluntary and the employerâs role is limited to certain administrative functions. But if the employer contributes money to the plan, ERISA generally applies.
Fees for 403(b) plans can vary widely, although average costs are similar to those of 401(k) plans. In 2022, the average total cost for large ERISA 403(b) plans was 0.76% of assets, according to the Investment Company Institute and ISS Market Intelligence. About 10% of plans had costs of 0.38% or less, while another 10% had costs of 1.29% or more.
By comparison, ICI and ISS MI found that the average total cost for large 401(k) plans was 0.74% of assets in 2023, down from 1.02% in 2009. The figure includes investment management, administrative, advice, and other fees.
Both 403(b) and 401(k) plans offer tax-advantaged ways to save for retirement. Although the two plans work similarly in many respects, some 403(b) plans are exempt from ERISA and offer a special catch-up contribution for longtime employees. As with any workplace retirement plan, compare fees and investment options before deciding how to invest.
This article was most recently revised and updated by Debbie CarlsonThis article was most recently revised and updated by Nancy Ashburn
