Desk with laptop, coffee, phone, and notepad.

401a vs 401k vs 403b: What’s the difference?

Analyzing the differences between a 401a vs 401k vs 403b is not fun. The various account names were created by the Internal Revenue Code, giving birth to these seemingly confusing account names. Despite how boring they may seem on the surface, learning about them will be worth your time.  

401a, 401k, and 403b accounts make up the majority of employer-sponsored retirement programs. These programs give you a tax-free space for your investments to grow rapidly while offering opportunities for employer matches. Understanding which account is specific to you will be the first step towards a comfortable retirement.

401a vs 401k vs 403b: What’s the difference?

Differences between 401a, 401k, and 403b

401(a) employers

These accounts are typically offered by employers in the government, non-profit, or education sector. Private companies are not able to offer 401(a) plans, making this account unheard of if you have typically worked a majority of your time in the private industry. 

401(k) employers

These accounts are offered for the private sector and are the most well-known accounts of the three. Since these plans are the most expensive of the three for employers, they often have some of the widest range of investment options. A great example of the largest 401(k) plan in the US is the Thrift Savings Plan.

403(b) employers

These accounts are offered exclusively for organizations that are tax-exempt. When you think 403(b), think of hospitals, churches, schools/universities, etc. Since the 403(b) plan is relatively cheap when compared to the 401(k), it is common to see these accounts have somewhat limited investment options compared to the other two. 

*While the type of employer won’t necessarily change your investment strategy between the three, it is always helpful to learn why you have your particular retirement plan. 

Control Over Your Investments

401(k) & 403(b)

Thrift Savings Plan (TSP). I have the option between five funds (C/S/I/G/L), meaning I can choose how much of my contributions I want to go into small stocks, international markets, bonds, etc! This freedom to choose how much to contribute, and where to contribute is why you see so much conversation about the 401(k) and 403(b) to begin with. Big decisions come with big questions. 


In a 401(a) decisions are made by your employer, not you. They will determine how much of your paycheck is automatically contributed, and where it goes. If your employer offers a 401(a), they will take the guessing game out of the equation for you.

Catch-up contributions

401(k) & 403(b)

These accounts both allow you to contribute an additional $6,500 annually to your account, bringing your total eligible annual contribution from $19,500 to $26,000, if you are 50+ years in age. This can help give you the final push to the finish line for your retirement goals if you weren’t as diligent of an investor as you should have been when you were younger. 


Since your plan is already set in motion by your employer, you sadly do not have this option. However, don’t fret! You are still in a great spot having access to a retirement account in the first place.

Similarities between 401a, 401k, and 403b

Retirement accounts:

All of these accounts are what we call retirement accounts.

This means that all three enjoy the special privilege of not having to pay capital gains tax. Not having to pay capital gains tax saves you thousands, if not hundreds of thousands in the long term.

While you will still pay income tax either on contribution or withdrawal, (Traditional vs Roth), the money you save by avoiding capital gains blows normal brokerage accounts out of the water. 

Employee matching:

Employee matching in retirement accounts is one of the biggest incentives to retirement accounts. It is the closest thing to ‘free money on the planet.

How it works is an employer will match the money you contribute up to a certain % of your contributions.

For instance, let’s imagine you make $5,000 a month, and your employer offers a full 100% match up to the first 5% of your contributions? Then you would put in ($5,000)(5%) = $500, and your employer would add $500 to your account for free.

An important note is that all three of these plans allow for employee matching, not guarantee it. Make sure you check to see if your employer does offer to match, as you don’t want this benefit to go unutilized regardless of which account you have.

Contribution limits:

As previously discussed, these accounts all have major tax advantages.

While this is wonderful for us, the government gets the short end of the stick as they receive much less tax money than they would have if you invested instead in a normal brokerage account. While they want to incentivize Americans to invest in their retirement, they also need money. This is why each of the accounts has an annual employee contribution limit of $19,500 per year.

Employee contributions represent money that is deferred directly from your paycheck into your retirement account. These accounts also have a combined contribution limit (the money you contribute + your employer’s match) of $57,000 per year.

Withdrawal fees:

All three accounts are classified as retirement accounts for a reason. These accounts aren’t supposed to fund that trip to the Bahamas, or those new shoes you don’t need, they exist for when you are no longer working (age 59 and a half).

This means if you withdraw money early, you will be hit with both an income tax (if traditional), as well as a 10% early withdrawal fee. This 10% early withdrawal fee is not something to scoff at. This fee can be absolutely devastating for your account balance.

If you withdraw from your plan earlier than the age of 59 1/2, you will be hit with a 10% fee, PLUS income tax, and you lose the opportunity to have that money invested.

As an example, if you had an individual withdrawing $15,000 from their 401(a)/401(k)/403(b) account with a balance of $60,000 they would pay income tax (22%) plus a (10%) fee, resulting in a withdraw taxed at (32%). This would mean that they would only have $37,942 versus $45,000 left if they had waited for retirement. Even worse, if that $15,000 had been left in their 401(k), for an additional 30 years, it could have grown over $120,000+ due to compound interest.

So which plan should you choose?

You don’t really get to ‘choose’ any of these accounts. Your employer ultimately decides which plan will or will not be available to you, so unless you are a business owner, you will be along for the ride! 

Regardless of which plan you have, remember that it is always vital to take advantage of your 401(k) match! So important that it is Step 2 of 6 on our How to Build Wealth Guide!

So if you take away anything from this post, just remember that regardless of your employer, you should be contributing enough to your plan to receive the employee match. Not everyone is fortunate enough to have this option, so make the most of it.

Leave a Comment

Your email address will not be published. Required fields are marked *