401k and 403b — Equally Boring, But Different

So what’s the difference between 401k and 403b?

Just a few short years ago, the term “401k” held very little meaning to me. All I knew was that it was something boring adults had, and since I refused to become one of those, I needn’t think of such nonsense. This mentality lasted until Johnny and I moved to New York City, and Johnny got his first job at a company that offered a 401k match. His company matched 50% up to 6%, so he began contributing 6%.

And then one night soon after, he asked me whether my company matched 401k’s. I’d been with my company for a couple years working remotely, and I vaguely remembered hearing a speech about retirement options at my new employee orientation. As a very recent college grad at the time, I had immediately tuned out such an irrelevant topic and let all the drab adults in the room take note. But Johnny’s question had me wondering, so after a little digging in my employee portal, I discovered that my company offered a 3% 403b match. I had never heard the term 403b, but it sounded like some sort of cheap knockoff of 401k — the Shasta soda of the financial world. But I did some reading and discovered some useful facts about both.

Who Offers Them

401k’s are offered by for-profit companies. 403b’s are offered by nonprofit companies and government institutions. You as the employee have only the option of what your company offers. My company, because it is a nonprofit, offers a 403b, so that’s what I can invest in.

Investment Choices

The investment choices with a 403b are limited to mutual funds and annuities, while 401k’s offer more choices, depending on your employer. This could be seen as a downside to 403b’s. However, I currently have my 403b money invested in a mutual fund, and although Johnny may have more choices with his 401k, his money is also invested in a mutual fund. In other words, even if I had a 401k, my money would probably be in a mutual fund, so I don’t feel limited by the 403b.


Whether a 401k or 403b is matched by the employer is completely up to the employer. Some companies match 50% and others match 100% up to a certain percentage. My company automatically contributes 3% of my salary to a 403b without me contributing anything. However, if I contribute 3%, they will match an additional 3% of my income at 100%. Trust me, I’ve mentally kicked myself in the butt several times for not taking advantage of that free money for a full two years! Ugh. All because I didn’t want to become boring.


Oftentimes if a company matches its employees’ 401k or 403b contributions, the employees will have to wait a number of years before they are fully vested. For instance, I am 100% vested with my company after 4 years. If I quit before that time, I will not collect all of my company’s 403b contributions. After the first year, I only get 25% of my company’s contributions. After 2 years, only 50%, and so on. However, whatever money I contribute myself is 100% vested from day one.

So, no, 403b is not the generic, less tasty version of 401k. Its name is just not as well known. Essentially, they are very similar, but the kinds of companies that offer them are different. It’s kind of like how there’s Quickbooks for us regular folks to use and Quickbooks Online Accountant Edition for bookkeepers. Also, I think after writing this post, I’ve become a full-blown boring adult. But I just checked the ever-growing balance of my 403b account yesterday, and if free money makes me a dull, old lady, then there’s no one else I’d rather be.

If your company offers 401k or 403b, how much are you contributing? Did you fall asleep reading about them? Bueller? Bueller?

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  • Reply Brian December 7, 2012 at 11:49 am

    I have a 401K which I contribute 15%. My wife has the 403b and she contributes 5% and they don’t have a set match but do “profit” sharing into it.

    I realized long ago I was a boring adult. I’m only exciting now because the new baby won’t let me be boring.

    • Reply Joanna December 7, 2012 at 12:49 pm

      It’s a relief to know that at least babies keep us exciting! We’ve got one due in 4 weeks — just in time!

      • Reply Brian December 10, 2012 at 11:30 am


        You are in for some exciting times! There really is nothing quite as cool as the first time you hold them or pretty much any time they smile when looking at you!

        • Reply Joanna December 10, 2012 at 12:37 pm

          We’re excited! And thanks for sharing positive stuff! Sometimes people talk to me about the downsides instead, and I get a little overwhelmed 🙂

  • Reply Christopher @ This that and the MBA December 7, 2012 at 12:14 pm

    My wife and I just upped our 401k to 10% each with 4% matching. We are boring and just trying to build up the nest egg like the rest of society…just get ahead in the rat race..

    Why does my employer offer both of them?

    • Reply Joanna December 7, 2012 at 12:53 pm

      Hey, there’s no judging here on the boring front. I’m embracing it wholeheartedly at this point 🙂

      Your employer offers both a 401k and 403b? I’ve never heard of that… I’d be interested to find out more on how that works!

  • Reply Newlyweds on a Budget December 10, 2012 at 1:35 pm

    I have a 403b, and my company matches 3%, so the first year I did 3% (for a total of 6%). I get a 3% raise every year, so I decided to keep adding it to my 403B. I am up to 10% of my income right now. I think that’s pretty decent. I don’t know at one point to stop though.. until I max out the contribution I guess? That may take a while…

    • Reply Joanna December 10, 2012 at 2:06 pm

      That’s awesome! I never would have thought of adding my raise each year to my 403b, or some other savings! Thanks for the great idea.

  • Reply JMK March 1, 2013 at 2:45 pm

    In my 20s I also tuned out all talk of retirement and investments figuring either I couldn’t afford to save anything, or it was too overwhelming and I was young and had plenty of time to figure out investing for retirement. Dumb. I could kick myself for all those wasted years. At 30ish I finally started making retirement savings a priority and we each put away a total of 15% (our own plus company matching). Terrific – 15% was what was recommended in everything we read. We figured we were all grown up now. Now again in my 40s I’m kicking myself (see a trend here) because I accepted the standard advice that 15% was enough without really bothering to understand what that would get me. Compared to nothing, 15% for retirement savings is great. It is also intended to allow you to retire at 65. Given a choice, is that the age at which I want to retire? No, actually I’d prefer to retire much, much earlier, but it never occured to me that I had the power to make that happen. A layoff in our early 40s caused us to completely reassess our budget and spending priorities, and temporarily cut all nonessentials. Wow what an eye opener that was. It turns out we can cover the very bare essentials on ~55% of our combined take home income. So why were we only putting 15% into retirement savings? All those years and clearly we were wasting a ton on nonessential crap. The job was quickly replaced (and there was a big severance package) but the best thing was that we never went back to wasting money like before. We decided that retiring early was our new priority and everything else was negotiable. If only we’d realized that a decade or so earlier we could have retired in our late 40s. We’re now on track to retire in 2020 in our late 50s. I still cringe at all those years when we could have been socking away 30-40% for retirement like we do now.
    It’s really too bad we aren’t all forced to sit down on the first day at our first real jobs and be made to listen and really understand how the choices we make in our twenties can change the course of our lives. Not only do most people in their twenties not “get” retirement savings, they often jump into what they believe are the requirements of being an adult (car, home, kids etc). In the first decade after school most people voluntarily take on a mountain of debt that may keep them trapped in jobs they hate. If those physical assets are truly what makes you happy, then great. If working for 20 years and retiring at 45 seems a better option, then you need to choose a very different path right from the start. Unfortunately that information and wisdom usually comes a decade too late.

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