Which statement BEST describes the difference between a 401(k) plan and a 403(b) plan?

Explanation

Both 401(k) and 403(b) are qualified, tax-deferred salary-reduction retirement plans subject to ERISA (with limited exceptions for governmental and church 403(b) plans). The key difference is the type of sponsor: 401(k) plans are offered by for-profit employers under IRC §401(k); 403(b) plans — sometimes called TSAs (tax-sheltered annuities) — are offered under IRC §403(b) by public school districts, colleges, hospitals, and 501(c)(3) charitable organizations. The statement that both may be sponsored only by state and local governments is wrong — 457 plans are for governmental and select non-profits; 401(k) is private; 403(b) is education/non-profit. The statement that a 403(b) is a non-qualified arrangement standing outside ERISA is wrong — both are qualified. And the claim that only 401(k) plans may accept designated Roth contributions is wrong — both 401(k) and 403(b) plans may now offer designated Roth contributions under IRC §402A.