Sec. 403(b) retirement plans: A comparison with 401(k) plans
Tax-exempt 501(c)(3) entities, public school systems, employers of ministers and self-employed ministers, and certain health and hospital service organizations may adopt 403(b) retirement plans. While 401(k) plans generally are subject to the Employee Retirement Income Security Act of 1974 (ERISA), many 403(b) plans (including church, public school, and employee-sponsored plans) are not.
Employees can make elective contributions to 401(k) plans and to 403(b) plans. Employers can make nonelective and matching contributions to 401(k) plans and, if provided for in the plan documents, to 403(b) plans.
The same basic limitation amount for elective contributions applies to both 401(k) and 403(b) plans, as does the over-50 catch-up contribution amount. However, employees with over 15 years of service may be able to make an additional special elective catch-up contribution to a 403(b) plan that cannot be made to a 401(k) plan.
Employee elective contributions to 401(k) plans vest immediately; employer contributions must generally be totally vested under one of two vesting schedules. All contributions, employee and employer, must vest immediately in a 403(b) plan.
When the commencement of distributions from 401(k) plans and from 403(b) plans can begin also differs. The commencement of distributions attributable to qualifying elective contributions (QECs), qualified nonelective contributions (QNECs), and qualified matching contributions (QMACs) from 401(k) plans are governed by the same rules. The rules governing commencement of distributions attributable to QECs from 403(b) plans are largely the same as these rules.
With respect to hardship distributions, 403(b) plans have stricter rules than 401(k) plans regarding what funds can be used.
An individual whose employer maintains both a 403(b) plan and a 457 government plan may be able to make contributions to the plans that are twice the contributions available if he or she participated in only the 403(b) plan (e.g., twice $19,500, or $39,000, for 2020 and 2021).