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What Are The Differences Between 401(k)s and 403(b)s?

There seems to be an ongoing debate about which is better to contribute to, a 401(k) or a 403(b)?  Typically, from a retirement standpoint both vehicles are very similar in that they are both employer sponsored plans. Both are also qualified tax-advantaged retirement vehicles.

But there are some differences between the two plans:


  1. 401(k) plans are offered by private, for-profit companies; 403(b) plans are only available to nonprofit organization and government employers.
  2. Employers that offer a 401(k) plan may match or make contributions to the plan on behalf of an eligible employee.  In some cases profit-sharing is also a feature that can be added to the 401(k) plan.  403(b) plans are legally able to provide employer matches to plan participants, but most employers don’t offer a match due to potential ERISA exemption issues.
  3. 401(k) plans tend to be administered by mutual fund companies; 403(b) plans tend to be administered by insurance companies.  Because of this, you will find 403(b) plan investment options are mainly annuities while 401(k) plan investment options offer a great deal of mutual funds.

Those are the major differences between a 401(k) and a 403(b).  So which is right for you?  It depends on if you are employed by a nonprofit organization or a for-profit company.  In either case, my advice is to put some money away for retirement.  If your company offers some type of match, by all means take advantage of that match.  If you are with a company that doesn’t offer a 401(k) or 403(b) plan, then you have to take an additional step and begin a retirement account outside of your employer. My suggestion is to start a Roth IRA.


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About Frederick Towles

Frederick Towles is an entrepreneur, author and professional coach on personal finance, recognizing, seizing and leveraging opportunities of all kinds. Frederick founded The Towles Group Inc. to address issues that relate to small businesses and individuals – accounting, taxation, asset protection, financial compliance, wealth creation, debt management and business management. He also founded Unlimited Expectations Inc. which provides tools for individuals to assist them in the areas of opportunity recognition, leadership and personal finance. Through the tools and services offered by these companies people are positioned to operate their lives and their businesses at optimal capacity.

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