Can I Have a 403(b) and a 401(k)?

401(k) and 403(b) plans are common employer-sponsored retirement savings vehicles. A 401(k) is typically offered by for-profit companies, allowing employees to contribute a portion of their salary on a pre-tax or Roth basis. A 403(b) plan serves a similar purpose but is generally available to employees of non-profit organizations, public schools, and religious institutions. It is possible for an individual to contribute to both a 401(k) and a 403(b) plan within the same year under certain circumstances.

Eligibility for Each Plan Type

Eligibility for a 401(k) plan is tied to employment with a for-profit entity. Employers establish and maintain these plans for their workforce. In contrast, 403(b) plans are for employees of tax-exempt organizations, such as public schools, universities, hospitals, charities, and certain government entities. The employer’s tax status determines the plan type offered.

An individual may be eligible for both plan types simultaneously through various employment arrangements. For example, someone could work full-time at a for-profit company offering a 401(k), while also holding a part-time role at a non-profit or educational institution providing a 403(b). Another scenario involves changing employers within the same calendar year, moving between for-profit and non-profit sectors. In these situations, contributions can be made to both plans based on the respective employment.

Contribution Rules and Coordination

The IRS imposes specific rules when an individual participates in both a 401(k) and a 403(b) plan. The annual elective deferral limit, which is the amount an employee can contribute from their salary, applies across all 401(k), 403(b), and similar plans combined. For 2025, this combined limit is $23,500. For example, if an individual contributes $15,000 to their 401(k), they can contribute an additional $8,500 to their 403(b) in the same year.

Employer contributions, such as matching funds or profit-sharing, are treated separately. These contributions, along with employee elective deferrals, fall under a different overall limit for each specific plan. For 2025, the total contributions to a single defined contribution plan (including both employee and employer contributions) cannot exceed $70,000. This limit applies to each plan individually, not across all plans combined.

Individuals aged 50 and over can make additional “catch-up” contributions. This catch-up contribution limit also applies across all eligible plans combined. For 2025, the catch-up contribution for those aged 50 or older is $7,500. An individual aged 50 or older could potentially contribute up to $31,000 in elective deferrals across their 401(k) and 403(b) plans combined.

Coordinate contributions carefully to avoid exceeding IRS limits. Exceeding the elective deferral limit can lead to taxable income in the year of the excess contribution and again when distributed. While the IRS limits elective deferrals across all plans, the overall limit for combined employee and employer contributions applies on a per-plan basis.

Tax Treatment of Contributions and Withdrawals

The tax treatment of contributions to both 401(k) and 403(b) plans offers significant benefits, whether contributions are made on a pre-tax or Roth basis. Pre-tax contributions are deducted from an individual’s gross income, reducing taxable income in the year the contribution is made. The investment earnings within these accounts grow tax-deferred, meaning taxes are not paid on the gains until funds are withdrawn in retirement.

Alternatively, Roth contributions are made with after-tax dollars, meaning they do not reduce current taxable income. However, qualified withdrawals from Roth accounts in retirement are entirely tax-free, including both contributions and earnings. A qualified withdrawal typically requires the account holder to be at least age 59½ and to have held the Roth account for at least five years.

Distributions from pre-tax 401(k) and 403(b) accounts in retirement are taxed as ordinary income. If withdrawals are made before age 59½, they are generally subject to a 10% early withdrawal penalty in addition to ordinary income taxes, unless an exception applies. Common exceptions include disability, death, or certain medical expenses. Having both a 401(k) and a 403(b) does not alter the fundamental tax rules for each individual plan but increases the number of retirement accounts an individual holds, each with its own tax characteristics depending on how contributions were made.

Accessing Funds and Account Transfers

Accessing funds from 401(k) and 403(b) accounts generally follows similar rules, designed to encourage long-term savings for retirement. Funds typically become accessible without penalty once the account holder reaches age 59½. Required Minimum Distributions (RMDs) also apply to both types of pre-tax retirement accounts, mandating that account holders begin withdrawing a certain amount annually once they reach a specific age, typically 73. Failure to take RMDs can result in significant penalties.

Individuals can often move funds between these retirement accounts through rollovers. A direct rollover involves transferring funds directly from one retirement plan administrator to another, such as from a 401(k) to an Individual Retirement Account (IRA), or a 403(b) to an IRA. This method is generally recommended as it avoids the mandatory 20% federal income tax withholding that occurs with an indirect rollover, where funds are first disbursed to the account holder. While direct rollovers to IRAs are common, rollovers directly between a 401(k) and a 403(b) are also possible, depending on the rules of the receiving plan.

Managing multiple retirement accounts requires careful attention to statements and communication from different plan providers. Consolidating accounts into an IRA after leaving an employer is a common strategy to simplify management. Understanding the rules for distributions and rollovers is important for effectively managing retirement savings built across various plan types.