Tags: Retirement | 401k vs 403b | retirement savings | plan

Which Retirement Savings Plan Should You Choose? 401(k) vs. 403(b)

By    |   Tuesday, 05 May 2015 10:11 AM

Saving for retirement is a priority for many people, and employer-sponsored retirement plans like the 401(k) and the 403(b) offer excellent opportunities to stash dollars for world travel, golf, or spoiling the grandkids. These tax-deferred plans are a lot alike, but have some key differences.

Here are a few differences that stand out when looking at the 401(k) versus the 403(b):

1. Employers who offer them: The primary difference between the two plans is the employers who offer them. The 401(k) is a retirement plan offered by for-profit employers; the 403(b), however, is offered by non-profit organizations, typically schools, churches and other charities.

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2. Plans vary: Depending on the company or organization offering them, the plans can vary, although the Internal Revenue Service lays out many of the regulations. Many 401(k) plans include matching contributions from employers, according to The Motley Fool.

3. The IRS sets the annual limits on tax-deferred contributions to both plans: Although employers can set limits on contributions to the company plans (such as 10 percent of your salary).

In 2015, the total employee contribution limit of pre-tax dollars was $18,000 for both plans, the IRS said. The limit for employer contributions to an employee’s retirement account was $35,000 in 2015, according to Saving2Invest.

In addition, individuals age 50 and older are allowed to increase their contribution (by $6,000 in 2015) as part of a catch-up option, according to IRS regulations.

However, 403(b) plans have special rules, including, among others, a special 15-year catch-up contribution rule, which applies to employees who have been with the organization for 15 years, and also a rule lets individuals contribute after they leave employment, according to PlanAdviser.

4. Non-profits offering 403(b) plans rarely contribute dollars
: And because they don't have profits, they don't deposit profit-sharing from the company into the accounts, as can happen with a 401(k), according to the Motley Fool.

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"Further, the organization has no ownership of the 403(b). Its only legal obligation is to deposit employees' salary deductions into the account," adds The Motley Fool.

5. The 403(b) programs are "generally exempt:"
From the Employee Retirement Income Security Act, which means they have less paperwork involved in their operation, says The Motley Fool. However, 401(k)s are subject to periodic reviews and have more of an administrative burden for the company than do 403(b)s.

PlanAdviser.com called the 401(k) and 403(b) plans "siblings, not twins," to make the point that there are significant differences between the two. Individuals concerned about retirement planning should consult financial professionals to understand the intricacies.

"Kind of similar, but really different, 401(k) plans and 403(b) plans are the fraternal twins of the retirement plan universe," PlanAdviser.com said.

"People think that 403(b) plans are just a funny version of a 401(k), but that is not true."

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Saving for retirement is a priority for many people, and employer-sponsored retirement plans like the 401(k) and the 403(b) offer excellent opportunities to stash dollars for world travel, golf, or spoiling the grandkids. These tax-deferred plans are a lot alike, but have some key differences.
401k vs 403b, retirement savings, plan
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2015-11-05
Tuesday, 05 May 2015 10:11 AM
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