The Difference Between 401K and 403B's | Home Finance Help

The difference between 401K and 403B?s lies within your employer. A 403B is available to the employees of public schools and certain non-for profit organizations. A 401K is available to all for profit corporations.

The benefits of joining a 403B are the same as joining a 401K, but there are certain differences you must know to get the most out of a 403B.

The difference between 401K and 403B?s ? Contributions

Contributions are very similar between a 401K vs 403B. The same $15,500 maximum contribution limit and $5,000 catch up apply to 403B?s.

There is one difference between 401K?s vs 403B?s with contributions that later you can benefit from. You?re entitled to a $3,000 catch up contribution if you have been with an employer for 15 or more years, no matter the age, and your contributions have averaged less than $5,000 a year. There is a lifetime maximum of $15,000 for this catch up contribution.

The difference between 401K and 403B?s ? Investments

Advice on investing in employer sponsored retirement accounts, on this website and many others are more geared towards 401K?s. Quality information, specifically on 403B?s can be very hard to come by. There are basic principles to investing in retirement accounts on this site, but for more specific information I would recommend 403BWise.com

401K?s and 403B?s both require a plan administrator to set up the retirement program. Unfortunately, 403B?s tend to have a lot more ethical concerns regarding their plan administrators. Many stories exist of royalties and kickbacks to schools districts for endorsing a plan administrator. Also, plan administrators for 403B?s tend to be more ?hands on,? often wanting participants to buy higher commissioned products that are not in the participants best interest.

403B?s investment options can offer a multiple arrange of annuities and mutual funds. Mutual funds offer a pure investment, while annuities offer an investment, tax deferral, and insurance. Since 403B?s already offer tax deferral, there is no reason to invest in an annuity inside of a retirement account. Since it?s not a pure investment like a mutual fund, returns will be lower over time. The reason why annuities are sold inside retirement accounts is they often pay the highest commission.

The difference between 401K and 403B?s ? Conclusion

Please be careful whom you talk to about your investments. Do your homework before talking to anyone; instead of getting talked into an investment or contract you don?t understand.

Before buying any products always know each fee that goes into it. Your best bet is to go with a low cost mutual fund, since costs are controllable.

If your employer doesn?t offer any low cost products or matching, invest in an ROTH IRA with a low cost provider instead. The contribution limits aren?t nearly as high, but the returns will be a lot better.

Source: http://www.thehumblemumble.com/the-difference-between-401k-and-403bs/

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