Difference Between 401(k) & 403B

401k plans and 403b plans are two types of employer-sponsored retirement plans with special tax benefits. Both plans allow you to deduct your contributions from your taxable income in the year the contributions are made.

401k and 403b plans help you save for retirment.

Eligibility

403b plans are offered to public sector employees who work in schools, hospitals and other non-profits while 401k plans are offered to people who work in the private sector.

Employer contributions

The company is allowed to make matching contributions to a 401k plan in addition to the participant's contribution. No matching contributions are allowed in 403b plans.

Investments

403b plans can offer investments in annuities, money-market accounts and mutual funds. 401k plans have a much wider range of investment options including stocks, bonds and mutual funds.

Time Frame

Workers are immediately vested in a 403b plan which means they will not have to give up any of their plan when they leave the company. Many 401k plans require employees to become vested, or have worked for up to five years, before they can take the full value of their account when they leave.

Warning

Many employers require a departing employee to close his 401k account to avoid high administrative costs. Most employers offering 403b plans have little or no administrative costs and don't mind keeping departing employees' accounts.

References

• The Motley Fool: 403b vs. 401k
• IRS: 403b plans
• TIAA-CREF: Differences between 403b and 401k