Key Takeaways
While similar, the main difference between 401(a) and 403(b) plans is often eligibility and plan design.
401(a) plans allow employers to require enrollment for eligible workers and set contribution models—but employers must also contribute to these plans.
403(b) plans, on the other hand, make enrollment voluntary.
If you’re thinking of offering a retirement plan, you’ll likely find yourself comparing 401(a) and 403(b) plans. Both of these retirement plans have their pros and cons, which you have to properly weigh in order to determine which one better suits your needs and goals.
Below is our guide to understanding the difference between 401(a) and 403(b).
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What is the difference between a 401(a) plan and a 403(b) plan?
401(a) plans are generally more rigid and used by public-sector or non-profit employers for specific employee groups, such as educators or healthcare workers. Employers usually have more control over the design of the plan and the contributions. 403(b) plans, on the other hand, usually have more flexibility for employees, because it allows for options like Roth contributions and high catch-up contribution limits for older workers.
What is a 401(a) plan?
A 401(a) plan refers to an employer-sponsored retirement plan that works similarly to a 401(k) plan, but the difference is that 401(a) sponsors are typically government agencies, nonprofit organizations, and educational institutions, while 401(k) sponsors are generally private companies
401(a) plans also allow employers to have more control over plan rules. For example, employers can set the eligibility requirements, which they usually make mandatory for qualified employees to participate.
Employers are also required to contribute to their employees’ 401(a) plans. Employers are also allowed to defer a certain percentage of their employees’ salaries or paychecks into their 401(a) plans. They can set a fixed percentage for the entire life of the plan or permit employees to change the rate at a specific time of the year. Due to the structure of a 401(a) plan, some employees may have the option to make contributions to their 401(a) accounts or traditional pensions, especially if they’re government employees.
Tax advantages of a 401(a) plan
Employees
To better understand the differences between 401(a) and 403(b) plans, it’s important to look at how they differ in terms of tax advantages. When you participate in a 401(a) plan, you’ll be contributing pretax dollars, which means that your employer will deduct your contribution from your salary before the government takes a cut. Different employers may offer different investment options, but you’ll typically be able to invest in stocks, mutual funds, and bonds that reputable investment firms manage.
Although your money remains in your 401(a) account, it grows without incurring taxes. Unlike a standard brokerage account, this type of account won’t subject your interest, capital gains, and dividends to tax each year. You’ll only have to pay regular income tax when you’re able to make qualified withdrawals, which is typically at the age of 59 1/2. If you withdraw funds earlier, you’ll incur a 10% penalty plus income tax on the withdrawal amount.
Employers
A 401(a) plan offers significant tax advantages for employers, making it a cost-effective way to provide retirement benefits. Employer contributions to a 401(a) plan are tax-deductible, reducing the organization’s taxable income, and these contributions are exempt from payroll taxes such as Social Security and Medicare. For example, if an employer contributes $100,000 to a 401(a) plan, they can avoid the 7.65% in payroll tax that would usually apply to wages, and save an additional $7,650.
401(a) contribution limits
The contribution limit for 401(a) plans is $70,000 in 2025. This limit applies to the combined total of employee and employer contributions. However, if the employee’s income is below the contribution limit, the employee and employer can only contribute up to their total salary. For example, if the employee earns $45,000 a year, the employee and employer are only allowed to contribute that amount to your 401(a) account for the year. The contribution limit for a 401(a) account is usually higher than that of other types of retirement plans.
Unlike 401(k) and 403(b) plans, 401(a) plans do not allow catch-up contributions for older employees.
What is a 403(b) plan?
A 403(b) plan refers to a tax-favored retirement plan that’s intended for employees of 501(c)(3) organizations and public schools. Some examples of organizations that typically offer 403(b) plans include:
Public schools
501(c)(3) tax-exempt organizations
Cooperative hospital organizations
Religious institutions
As in 401(a) plans, sponsors of 403(b) plans have the authority to set eligibility requirements. However, the IRS usually requires them to set up one of the following types of accounts:
Custodial accounts that invest in mutual funds
Annuity contracts with insurance companies
Retirement income accounts for religious organization employees that invest in annuities or mutual funds
When trying to understand the difference between a 401(a) and a 403(b) plan, it’s important to know that a 403(b) plan typically offers annuity options from insurance providers, while a 401(a) plan usually facilitates mutual fund investments. It’s worth noting that most colleges and universities offer attractive employer contributions.
Additional reading: Comparing a 403(b) vs. a 401(k)
Tax advantages of a 403(b) plan
Employee
When it comes to tax treatment, a 403(b) plan functions in the same way as a 401(a) plan. If your employee is a 403(b) participant, they can make contributions on a pretax basis, and their money can also grow without being subject to tax. Additionally, they’ll have to pay regular tax on eligible withdrawals, which they can make at the age of 59 1/2.
Employer
A 403(b) plan has several tax advantages for employers, primarily through tax-deductible contributions. First, employer contributions to the plan are tax-deductible, meaning the employer can reduce their taxable income by the amount they contribute. This helps lower the business’s overall tax bill. Additionally, employer contributions to a 403(b) plan are not subject to payroll taxes like Social Security and Medicare, which results in further savings for the employer. Finally, because the plan allows for tax-deferred growth, the employer doesn't have to pay taxes on any earnings in the plan until withdrawals are made.
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403(b) contribution limits
According to IRS rules, employees who enroll in a 403(b) plan are allowed to contribute a maximum amount of $23,500 in “elective deferrals” to their accounts in 2025. Additionally, if the employee is 50 or older and has maxed out their deferrals, they’re allowed to make an additional catch-up contribution of $7,500. (Elective deferrals are the money that’s deducted from your paycheck and put into your account). What’s also new in 2025 is that individuals ages 60 to 63 now have a higher contribution limit of $11,250.
If the employer is contributing to a 403(b) account, they can contribute a maximum additional amount of $46,500, which brings the total contribution limit to $70,000.
The IRS also has a compensation-based cap to prevent individuals from contributing more to their retirement plans than they actually earn annually. If an employee’s annual income is less than the 2025 contribution limit of $70,000, their maximum contribution is equal to their total compensation in the year. For instance, if they earn $45,000, the total contribution for both employee and employer can’t exceed $45,000.
How to choose between a 401(a) plan versus a 403(b) plan for your organization
In order to make an informed decision when choosing between a 401(a) plan and a 403(b) plan for your organization, you’ll need to take the type of organization into account, as well as your workforce’s needs, and goals for your employee retirement benefits.
A 401(a) plan is often used by public sector employers to target specific employee groups. Employers are allowed more control over contribution schedules, vesting schedules, and eligibility criteria, which can make it a more ideal choice for organizations that want to align retirement benefits with strategic goals such as keeping high-value employees.
If you’re looking for a plan that allows for voluntary employee contributions, Roth options, and additional catch-up contributions for older employees, you may want to consider a 403(b) plan. A 403(b) plan may be a better choice if your workforce wants more flexibility in how they save and invest for retirement. And generally, a 403(b) plan typically requires less administrative work, and allows for more investment options, which can appeal to participants who may be more financially literate.
Learn more about Human Interest’s retirement plans
To learn more about the differences between 401(k), 401(a), and 403(b) accounts, contact Human Interest today.
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The Human Interest TeamWe believe that everyone deserves access to a secure financial future, which is why we make it easy to provide a 401(k) to your employees. Human Interest offers a low-cost 401(k) with automated administration, built-in investment education, and integration with leading payroll providers.
