Can You Combine a 401(k) Account With a 403(b) Account?
- A 401(k) is typically offered by private companies, while a 403(b) is designed for employees of public schools and nonprofit organizations.
- Both accounts share similar contribution limits and tax rules. You can choose between pre-tax and Roth contributions.
- You can combine a 401(k) and a 403(b) through a direct rollover but always check plan rules before proceeding.
- Investment options differ: both offer mutual funds, but only 403(b) plans typically include annuities.
- To decide what’s best, consider tax implications, fees, and the options available with your new employer’s retirement plan.
Introduction
Combining a 401(k) with a 403(b) may seem complex, but both accounts are designed to help you save for retirement with tax advantages. While they serve different employment sectors, it is possible to consolidate them, usually through a direct rollover. Doing so can simplify your financial life and help you manage your retirement savings more effectively.
Comparing 401(k) and 403(b) Accounts
Both 401(k) and 403(b) accounts are retirement savings plans that offer tax-deferred or Roth (after-tax) contribution options. The key distinction lies in who they’re offered to:
- 401(k): Offered by private-sector employers.
- 403(b): Offered by public schools and tax-exempt nonprofit organizations.
Despite their similarities, there are differences in investment options and plan structure that can affect your savings strategy.
401(k) Account Features
- Who It’s For: Employees of private companies
- Contribution Limit (2024): Up to $23,000; additional $7,500 for those age 50 or older
- Tax Benefits: Contributions can be made pre-tax or as Roth contributions
- Investment Options: Usually include mutual funds, ETFs, stocks, and bonds
- Employer Match: Many employers offer matching contributions
403(b) Account Features
- Who It’s For: Employees of public schools, churches, and tax-exempt nonprofits
- Contribution Limit (2024): Also up to $23,000, plus a $7,500 catch-up for those 50+
- Tax Benefits: Offers both pre-tax and Roth options, depending on the plan
- Investment Options: Primarily mutual funds and annuities
- Extra Contributions: Some long-term employees may qualify for additional catch-up contributions
401(k) vs. 403(b) Comparison Table
| Feature | 401(k) | 403(b) |
|---|---|---|
| Employer Type | Private-sector companies | Public schools, nonprofits, some churches |
| Investment Options | Stocks, bonds, ETFs, mutual funds | Mutual funds, annuities |
| Catch-Up Rules | Standard IRS catch-up limits | May include additional catch-up for tenure |
Combining a 401(k) With a 403(b)
You can typically combine these plans through a direct rollover, where funds move from one account to another without taxes or penalties if done correctly. This is a good option when changing jobs, retiring, or consolidating your financial portfolio.
What You’ll Need Before Starting
- Contact details for the administrators of both plans
- Account type (traditional or Roth)
- IRS guidelines on rollovers and Roth taxation
- Guidance from a financial advisor (strongly recommended)
Review your current and new employer’s plan rules, including fees and investment options.
Steps to Combine Accounts
Review Plan Rules and Eligibility
Check with both plan administrators to confirm whether a rollover is allowed and whether the account types (Roth vs. traditional) are compatible.
Assess Tax Implications
- Rolling over from pre-tax to pre-tax usually does not trigger taxes.
- Rolling from pre-tax to Roth may result in immediate tax liability.
- Avoid early withdrawals, which may cause penalties and taxes.
Coordinate With Administrators
Work with the HR or plan administrators of both your previous and current employers to initiate the process.
Request a Direct Rollover
This ensures the money is sent directly to the new plan, avoiding tax withholding and penalties. Do not cash out the account.
Conclusion
Understanding how a 401(k) and a 403(b) differ can help you make smart decisions for your retirement future. Combining the two can simplify your financial management and maximize your investment potential but it’s not always the best choice for everyone.
Before consolidating accounts, evaluate fees, investment choices, employer matches, and your long-term goals. When in doubt, seek personalized guidance from a financial or tax advisor.
Frequently Asked Questions (FAQs)
Can I contribute to both a 401(k) and a 403(b) in the same year?
Yes, if you’re employed by both a private company and a qualifying nonprofit or public organization. However, your combined contributions across both plans must not exceed IRS annual limits.
What are the tax implications of combining these accounts?
If both accounts are traditional (pre-tax), you can do a direct rollover without paying taxes. Moving funds into a Roth account may trigger income taxes, depending on your situation.
Will I face penalties for rolling over a 403(b) into a 401(k)?
No, as long as you complete a direct rollover. Avoid cashing out the account, which could trigger taxes and early withdrawal penalties.
Should I keep the accounts separate or combine them?
It depends. Combining accounts simplifies management but may reduce your investment flexibility. Compare fees, investment options, and performance. A financial advisor can help you decide.
Updated by Albert Fang
Source Citation References:
+ Inspo
Internal Revenue Service. (2025, January). Publication 571: Tax‑Sheltered Annuity Plans (403(b)) [PDF]. IRS.