Overview
The 403(b) & 401(k) are the qualified tax-advantaged retirement plans offered by employers. The main difference between 403(b) & 401(k) plans is the type of employer offering the plan.
As 401(k) is available for people working in private and profit-based companies. However, in the case of 403 (b) plans, they are only available to non-profit organizations and government employers.
401(k) Plans
A 401(k) is a retirement plan that makes employees eligible to accumulate their salary or wages.
Withdrawing funds from 401(k) – You begin to enjoy the income from this retirement mainstay and face its tax consequences.
For most people, distributions are taxes as ordinary income. However, the tax burden incurred depends on how and when you withdraw funds from it.
403(b) Plans
This is a retirement plan for most of the employees of non-private organizations and government schools. These plans are capable of investing in mutual funds or annuities. 403(b) plans are also a different name for a tax-sheltered annuity plan.
Employees belonging to tax-exempt are also eligible to participate in this plan. Participants include:
- Professors
- School administration
- Teachers
- Government employees
- Nurses
- Doctors
- Librarians
Legal Difference between 401(k) and 403(b) plans
In 403(b) plans, sponsor employees are unable to accept profit sharing. This is possible because the entities that are allowed to offer plans are not working to make a profit. In addition, the plans under 403(b) do not comply with many of such regulations in the (Employee retirement income security act) ERIS C.
Additionally, in this plan, investment funds are required to register as a qualified investment. This is also to be done under the 1940 Security and Exchange Act, which is to be included in the 403(b) plan.
Practical Difference
403 (b) plans can also provide employer’s matches contribution legally. Most employers are unwilling to participate in this plan, so they do not lose such exemptions. However, if an employer has 15 years of service with certain non-profits, government agencies, or in any other department, they may be able to make up the match-up contributions to their 403(b) plan, as not in the case with 401(k) plan. This is a practical difference between 403(b) & 401(k) plans.
The difference between a 401(k) & 403(b) plan is that the plan provider and the administrator are different for each type of plan. This tends to be administrated by mutual funds companies. However, a 403(b) plan is offered by the insurance company, and this is a good reason to justify why many 403(b) plans limit investment options. They offer prominent future feature annuities to people.
Conclusion
As far as retirement vehicle goes, the two different plans like 401(k) & 403 (b) proves to be very similar in terms of comparison. Both plans have the basic contributions limit.
Though it is very rarely seen that any company is providing both 401(k) & 403 (b). In this case, employers may contribute to both accounts.
