Difference between 403b and 401k
|
Basis |
403(b) |
401(k) |
|---|---|---|
|
Meaning |
A 403(b) plan is a retirement savings plan offered to employees of certain tax-exempt organizations, such as public schools, hospitals, and nonprofit organizations. |
A 401(k) plan is a retirement savings plan offered to employees of for-profit organizations, allowing them to save and invest a portion of their pre-tax income for retirement. |
|
Eligible Employers |
403(b) plans are available to employees of certain tax-exempt organizations, such as public schools, hospitals, religious organizations, and nonprofit organizations. |
401(k) plans are typically offered by for-profit employers to their employees. |
|
Contribution Limits |
The contribution limits for 403(b) plans may be different from those of 401(k) plans, with special catch-up contributions available for employees with at least 15 years of service. |
401(k) plans have specific contribution limits set by the IRS, which may differ from those of 403(b) plans. |
|
Investment Options |
403(b) plans typically offer investment options such as annuities and mutual funds. |
401(k) plans usually offer a broader range of investment options, including mutual funds, ETFs, and employer stock. |
|
Plan Administration |
403(b) plans are often administered by insurance companies or mutual fund companies. |
401(k) plans may be administered by financial institutions, such as banks or brokerage firms, or by third-party administrators. |
|
Non-Discrimination Testing |
403(b) plans may be subject to less stringent non-discrimination testing requirements compared to 401(k) plans. |
401(k) plans are subject to rigorous non-discrimination testing to ensure that benefits are not disproportionately provided to highly compensated employees. |
|
Legal Requirements |
403(b) plans are governed by specific regulations under Internal Revenue Code (IRC) Section 403(b). |
401(k) plans are governed by regulations under IRC Section 401(k). |
Difference between 403b vs. 401k
In navigating the realm of retirement planning, understanding the distinctions between various savings options is crucial. Two commonly discussed retirement plans are the 403(b) and the 401(k). These plans, while similar in some aspects, differ significantly in terms of eligibility, contribution limits, investment options, and administration.