What Is the Difference Between a 403(B) and a 401(K) Plan?

It’s never too early to plan for retirement. Thankfully, retirement plans often come with employment, thus making saving for your future more convenient. Most companies offer 401(k) and 403(b) retirement plans to their employees.

As you’ve probably guessed, those two retirement plans are not completely similar. By the end of this article, you should have a good idea of what you need to do regarding those retirement plans.

Highlighting the Differences Between 403(b) and 401(k) Plans

If you’re new to the workforce, you may not know much about retirement plans. You may understand that both plans can help you save money, but their specific qualities may elude you.

So, which is better: a 401(k) or 403(b) plan? Come up with your own answer to that question after learning how they differ from one another.

Companies That Offer Them

Arguably the most significant difference between 401(k) and 403(b) plans is related to the companies that offer them.

401(k) retirement plans are typically offered by private companies that operate to turn a profit. Meanwhile, 403(b) plans are usually presented to employees of non-profit organizations, religious organizations, tax-exempt organizations, educational institutions, and hospitals.

To put it simply, you may not be able to choose between 401(k) and 403(b) plans once you are already working. If you want a specific retirement plan, you may have to choose from a certain group of potential employers.

Associated Fees

Typically, private companies have to pay more to offer 401(k) plans. 403(b) plans often come with more affordable fees, so non-profit organizations can pay for them with greater ease. Although this will not affect your savings, it is still worth noting at the very least.

Contribution Matching

To attract more talented workers, many private companies will offer to match the contributions employees make to their 401(k) plans. You can effectively boost your savings by working for a company like that.

Unfortunately, organizations that provide 403(b) plans normally don’t match their employees’ contributions. They refrain from matching contributions because doing so could subject them to additional expenses and obligations.

Investment Opportunities

Lastly, 401(k) and 403(b) plans differ in terms of the investment opportunities they provide.

You can only invest in annuities and mutual funds if you have a 403(b) retirement plan. 401(k) plans provide employees with opportunities to invest in annuities, mutual funds, bonds, stocks, and numerous other options. Exploring a more diverse array of investment opportunities is easier if you have a 401(k) plan.

Can I Contribute to Both a 401(k) and 403(b) Plan?

There are pros and cons to both the 401(k) and 403(b) retirement plans. Because of that, you may have a hard time choosing between them.

Can you simply opt to contribute to both retirement plans if you don’t want to pick one over the other? You can do that if your employer offers both plans.

Contributing to the plans simultaneously can help you grow your savings faster. Remember that there are contribution limits you must heed if you intend to save money that way.

Both 401(k) and 403(b) plans give people convenient ways to save for retirement. Now that you know how they differ, you can use that information to pick the plan that will set you up better for retirement.