What's the difference between a 401(k) and a 403(b)?

Question

I always hear about 401(k) plans, but my employer offers a 403(b) instead. What's the difference?

Answer 1

The difference is that you work for a non-profit employer.  Hospitals, police, fire department, government agencies have 403(b) plans while for profit businesses like corporations have 401(k) plans.  The names 401(k) and 403(b) come from the number and subsection of the statute in the Federal Tax Law that outlines the programs and what they are allowed to do and not do.  There are a few differences, but essentially, a 401(k) and 403(b) are pretty much the same.

Answer 2

From where you stand, the differences may not be too significant.  A 401(k) plan may be offered by any employer, but a 403(b) plan is only offered by certain government agencies, non-profits, and public educational institutions.

A 403(b) plan does have some extra benefits that a 401(k) does not.  Speak to your financial advisor for more information on how the plan's benefits may affect your personal situation.

Good luck!