Choosing between a 403(b) and a 401(k) retirement plan

Identifying the key parameters of your plan’s oversight makes your job easier. Understanding the distinction between 403(b) and 401(k) plans is a good place to start.

Assuming that your organization is a 501(c)(3) and is either a church or parachurch organization, you qualify for either of these retirement plans under IRS regulations. So, why chose one over the other?

In its simplest form, the 403(b) is cheaper to establish and administer. The primary reason is due to the fact that 403(b) plans require less reporting and testing. We have seen that a majority of 401(k) plans are often recommended by advisors not familiar with 403(b) plans and how they can benefit ministry organizations.

Another reason for the recommendation of a 401(k) plan over a 403(b) plan by advisors is because they are associated with vendors that do not support a 403(b) platform. A simple way to remember the distinction between these two plans is that 401(k) plans are used exclusively by “for profit” organizations, as all of these organizations fall under ERISA Regulations.

Click here to learn more about Church Retirement Plans.


Envoy does not offer legal or tax advice and encourages that you consult with a lawyer and/or professional tax advisor for personalized tax advice.