How Does My 403b Differ from a Traditional 401k?

401k and 403b retirement savings plans are very similar in their function. The main difference is 403b accounts are offered only to non-profit organization employees. As such, unique rules apply to 403b accounts that do not apply to 401k accounts.

Unable to accept profit sharing or dividends: Non-profit organizations are not permitted to gain any profits on an annual basis. As such, employees with 403b accounts will not have the opportunity to have long-term gains through profit sharing or dividend payments. 401k accounts often serve as a way for a company to share profits and stock.

Company has no ownership of 403b accounts: If a non-profit organization technically owned or operated a 403b account, it would again be breaking the rules applied by the federal government to non profits. The companies do not have this option. They are only responsible for making contributions as promised in the employee benefit package. On the other hand, employees with 401k accounts will often understand their employer has full ownership of the 401k plan. 

Other than these differences, the structures are very similar. They provide tax benefits on dollars saved for retirement. The exact tax benefits provided depend on the structure of the account itself.

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