401(k) and 403(b) – Frequently Asked Questions

What is the difference between a 401(k) and a 403(b)?

Both 401(k) and 403(b) plans are employer-sponsored retirement plans that allow you to save for the future with tax advantages. In general, 401(k) plans are offered by for-profit companies, while 403(b) plans are available to employees of public schools, certain government employers, and many nonprofit organizations. In practice, most people do not choose between the two—the plan type you have is usually determined by where you work.

Is a 403(b) plan better than a 401(k)?

One plan is not automatically better than the other. What matters more are the specific features of the plan you have access to, such as investment options, fees, employer contributions, and whether Roth contributions are available. If you change jobs over time, you may have a 401(k) from one employer and a 403(b) from another, and you can evaluate each based on its own terms.

Can I have both a 401(k) and a 403(b)?

It is possible to have both a 401(k) and a 403(b) at different points in your career, and some people may contribute to both in the same year if they work for more than one employer. However, the IRS applies a combined annual contribution limit across 401(k) and 403(b) salary deferrals, so it is important to understand how much you are contributing in total when you add up all plans.

What happens to my 401(k) or 403(b) when I change jobs?

When you leave an employer, you typically have a few options for your 401(k) or 403(b) account. Common choices include leaving the money in the former employer’s plan (if allowed), rolling it into your new employer’s plan, rolling it into an IRA, or taking a cash distribution. Each option has different implications for fees, investment choices, taxes, and long-term planning.

Should I roll over my 401(k) or 403(b) when I change jobs?

Whether to roll over an old 401(k) or 403(b) depends on factors such as investment options, costs, and how you prefer to keep your accounts organized. Some people prefer to consolidate old plans into a single IRA or into a current employer’s plan for simplicity, while others decide to leave funds where they are if the existing plan is strong. Reviewing your options in the context of your broader retirement plan can help you decide.

At what age can I access my 401(k) or 403(b) without early withdrawal penalties?

For many people, withdrawals from a 401(k) or 403(b) before age 59½ can trigger an additional early withdrawal penalty, along with income tax on the distribution. There are exceptions, such as the “age 55 rule” in some employer plans and other specific circumstances. The exact rules that apply to you depend on your plan type, your age, and when you separate from service, so it is important to review them carefully before taking money out.

How much of my paycheck should I contribute to a 401(k) or 403(b)?

There is no single percentage that is right for everyone, but many people aim to contribute at least enough to receive the full employer match if one is offered. From there, it can be helpful to work backward from your retirement goals and timeline to estimate a target savings rate, then adjust contributions over time as your situation changes.

How do traditional and Roth 401(k) or 403(b) contributions differ?

Traditional contributions are made on a pre-tax basis, which can reduce your taxable income today but generally result in taxable withdrawals later. Roth contributions are made with after-tax dollars, so they do not reduce your current taxable income, but qualified withdrawals in retirement may be tax-free. Deciding which approach, or combination, to use depends on your current and expected future tax situation.

What are some reasons to consider rolling over old 401(k) or 403(b) accounts?

People often consider rollovers to simplify the number of accounts they manage, to access a different set of investments, or to align retirement savings with a broader strategy. A rollover can also help some households better coordinate asset allocation, fees, and distribution planning, especially as they approach retirement.

Can I take money from my 401(k) or 403(b) while I am still working?

Some employer plans allow loans or certain in-service withdrawals under specific conditions, but the rules vary by plan and may come with important trade-offs. Because these accounts are designed for retirement, it is generally important to understand the long-term impact of taking money out early and to review the plan’s rules before making a decision.