What's the Difference Between a 403(b) and a 401(k)?

A 403(b) and a 401(k) are very similar retirement plans that work almost the same way, but they're offered by different types of employers. A 401(k) is typically offered by for-profit private sector companies, while a 403(b) is offered by public schools, nonprofits, hospitals, and certain other tax-exempt organizations. Both plans allow pre-tax contributions, employer matching, and the same annual contribution limits ($23,000 in 2024). One historic difference is that 403(b) plans had more limited investment options — often only annuities — but many modern 403(b) plans now offer mutual funds and a wider range of choices. For practical purposes, if you're offered a 403(b) through your employer, it functions essentially the same as a 401(k) in terms of how you contribute and how the tax benefits work.