The Best Strategies for a 401k for Nonprofit Professionals

Explore The 401(k) Essentials

When you work for a nonprofit, you may not always think of a 401k for nonprofit settings as your first option, but it can be a powerful way to save for retirement. Unlike the traditional perception that nonprofits only offer 403(b) plans, a 401(k) can also be available to certain organizations, and it often brings flexibility and potentially lower fees. If you’re aiming to attract talent or improve your own retirement outlook, it’s worth understanding how a 401(k) works in a nonprofit context.

Understand How 401(k)s Differ

Before you dive in, it’s helpful to know that nonprofits generally can choose from 403(b), 401(k), SIMPLE IRAs, or other plans like 457(b). Historically, 403(b) plans were exclusive to public schools and select 501(c)(3) organizations, but the administrative gap between a 401(k) and 403(b) has narrowed. According to a study by ForUsAll (ForUsAll), total assets in 401(k)s continued to outpace 403(b)s, reaching $1.4 trillion in 2022. Nonprofits see these plans as less complex than they once were, especially under recent reforms.

Compare 401(k) And 403(b) Plans

If you’re deciding between offering or participating in a 401(k) or 403(b) plan, there are a few basics to keep in mind:

• Eligibility: A 403(b) is restricted to public schools and certain tax-exempt groups, while a 401(k) can be offered by almost any entity, including nonprofits.
• Investment Choices: Many 401(k) plans provide more varied investment options, whereas certain 403(b) plans have been limited to annuities and mutual funds.
• Fees And Lawsuits: Some 403(b) plans have faced high fee structures, even lawsuits. The University of California settled a $13 million suit over excessive 403(b) fees in 2023 (ForUsAll).
• Participation Rates: One study found 89.4% of eligible employees join 401(k)s, compared to 79.4% for 403(b)s (ForUsAll).

Recognize Key Contribution Limits

Retirement plan contribution limits keep moving, so staying up to date is vital. In 2025, both 401(k) and 403(b) plans allow a maximum annual contribution of $23,500, plus an extra $7,500 if you’re over 50 (Human Interest). Also, many nonprofits match a portion of employees’ contributions. This match might be dollar-for-dollar up to a certain percentage, boosting your savings potential even more.

Weigh Fees And Participation Rates

One of the biggest shifts in nonprofits adopting 401(k)s over 403(b)s has been the fee structure. Certain 403(b) plans charge higher administrative or investment fees, which reduces employees’ take-home savings. Meanwhile, some 401(k)s offer lower-cost index funds and simpler fee models. As a result, employees feel more motivated to participate, especially when they know more of their money is actually compounding for their future.

Consider Additional Retirement Tools

A 401(k) is just one option if you run or work at a nonprofit. Depending on your unique situation, you might find these alternatives worth a look:

• SIMPLE IRAs: Often easier to administer, but they come with lower contribution limits.
• 457(b)s: Available to certain tax-exempt groups, offering penalty-free withdrawals in specific circumstances.
• Pairing Plans: Some nonprofits do offer both 401(k) and 403(b) plans, giving employees even more flexibility.

Sometimes, especially for self-employed individuals or small companies, other solutions might be appropriate. If you’re curious, check out the best retirement plan for self employed. And if you want to compare additional structures, you can always review s corp retirement plan options.

FAQs About 401k For Nonprofit

You might wonder: “Does my nonprofit even qualify for a 401(k) plan?,” “How does it differ from a 403(b)?,” “What are the contribution limits?,” “Are there special tax advantages for nonprofit employees?,” and “Is matching mandatory for nonprofits offering 401(k)s?”

Key Takeaways And Next Steps

When you’re exploring a 401(k) for nonprofit situations, remember the rewards include flexibility, potentially lower fees, and higher employee participation. Keep an eye on plan fees, contribution limits, and the possibility of an employer match. You can compare multiple retirement options for your team or yourself and even speak with a retirement advisor if you need help navigating the details.

As a nonprofit professional, it’s smart to focus on ensuring that every dollar you save serves your future, whether you’re a seasoned executive or just getting started with retirement planning. For more insights specific to different sectors, see retirement planning for specific professions. Ultimately, a well-chosen 401(k) plan can help you and your team feel secure, knowing you’re investing in the retirement you deserve.