How Do a 401k and 403b Compare?

The 401k and 403b are very similar retirement accounts. They also both have some unique features that make them different from the other type of account. Here are a few things to consider about the 401k and 403b. 

Similarities

These two types of retirement accounts work in basically the same way. The employer sets up a program with a financial brokerage to administer their retirement plan. The employees can then make pretax contributions to their accounts out of their own paychecks. Once the money is deposited into these accounts, the employees can invest it into the financial markets. The money that is earned on the investments is allowed to continue to grow in the account tax-free. Once the employee reaches the age of 59 1/2, they will be able to start withdrawing the money and pay taxes on it then.

Differences

Although these two types of accounts are very similar, they have a few differences. The 401k plan is reserved for traditional companies that earn a profit. With the 403b account, only nonprofit organizations can start this type of retirement account. With a traditional company, there could be profit at the end of the year that would be distributed to the employees. With the 403b plan, this is not an option because there is no profit.

blog comments powered by Disqus