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Compare 401K And 403B Retirement Plans
Planning for retirement is a good decision. You can choose either the 401k plan or 403b plan depending on which industry you are working for. |
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The 401k plan is a tax-deferred retirement plan for employees from private sector. The 403b plan is a tax-deferred retirement plan for employees of educational institutions and certain non-profit organizations.
Generally speaking the main tax advantage of a 401k plan and 403b plan is the same. You do not pay federal income taxes on the contributed amounts until you withdraw the amount. In 401k and 403b plans, the amounts contributed and the income earned from the plans are not subject to federal income tax until you receive the amount.
You can also change the contribution amounts to both 401k and 403b plans at any given point of time. Both plans consist of the tax-deferred amount, the employer’s contribution and as well as the after tax contribution by the employee. Just like many 401k plans, 403b plan also have matching contributions from the employer. However, if the 403b plan is your employer’s only retirement plan, the contribution can be rather generous when compared to a 401k plan.
The 401k and 403b plans also have differences. A 401k plan is set up and administered by the employer. However, the 403b plan does not require the employer’s intervention other than making the payroll deduction.
A 401k plan requires quite a bit of administration and that is the reason why employers ask employees to their 401k funds with them at the time of termination. However, as the employer is not involved in the 403b plan, the funds stay where they are even after termination of employment.
In most 403b plans vesting is automatic. This happens only if the employer is making matching contributions while the employee’s contribution is always 100 percent vested. However, the vesting period for 401k plans is up to 3 years.
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