401k and 403b advantages and disadvantages

403b or 401k – Which One is Better?

If you have been planning about starting a retirement plan, congratulations you have just made the best decision! But you need to be equally careful while taking the next step – deciding the best IRA plan for yourself. The two most common of these are 401k and 4013 b. Though it is mostly the employer who gets to decide which one of these is offered to you. Yet it is very important to understand the advantages and the disadvantage of the two if you end up in a situation where you have to make a comparison between the two.

What is a 401k Plan?

401K plan is a retirement plan that gives the people an option to save for their retired life while they employed by making monthly contributions to it. Although it comes with several perks that include tax differed savings and future security. The main benefit that makes it the most sought plan is that with this, the employers also contribute a certain match on the amount that you deposit. Making it even more interesting it can be anything up to 25%. If you want to know more about is a 401k plan in detail you can read our post what is a 401k plan?

What is a 403b Plan?

A 403 b plan is just like a 403 b plan with just one difference that it is mostly offered by schools, institutes, NGO’s (non – governmental organizations) and to government employees. And, since they are not focused on profit making, these do not contribute the employers match to the employees. However, this does not make it any less profitable than 401k plan so, don’t forget to check the terms while signing up for more.

Key Differences Between 401k and 403b Retirement Plans

Now that you have an idea about what a 403b and a 401k plan is, it is very important to understand the difference between the two. Although the plans are more or less the same, there are a few difference too, each with its own set of advantages and disadvantages. This makes it very important to keep the following key points in mind.

Employers match: This is the basic and the most important difference between the two. While employers match is the key constituent of 401k plan, the 403b plan does not offer it.

Offered By: The private firms working for-profit offer 401k plan. The 403b plan is only offered by NGO’s, schools and to the government employees.

Catch up Contributions: Since the amount offered in a 403b amount is less and there is no match offered by the employers, the IRS allows the employees to make additional deposits to cover up for it. However, it is also applicable if you have served for a specific number of years, like 15 with the same employer.

Administrators: Though the provisions of both the plans are more or less than the same. The administrators for the two vary. The 401k plan is administered mostly by mutual fund companies thus gives more investment options. At the same time, a 403b plan is handled by insurance companies thus offers more annuities and limited options to invest in.

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