401(k) plans and 403(b) plans are both retirement plans designed to help employees save in a tax-deferred manner. The main difference is that 401(k) plans are offered strictly to employees in the private sector, while 403(b) plans are offered to non-profit organizations that are governed by Section 501(c)3 of the Internal Revenue Code. These include schools, hospitals, religious organizations and even some governmental organizations. If you're wondering which type of plan is better, your question is likely a moot point, because you'll automatically be offered (assuming the employer offers this) either one type of plan or the other. You will never be offered a choice between these two types of plans from the same employer. If you work two jobs and have one employer in the private sector and the other in the non-profit sector, then you may have this choice. In that case, the better option will depend upon the investment choices offered in each type of plan. Here is a breakdown of the differences and similarities between the two types of plans: Similarities: Differences: Although both plans can contain vesting schedules, this schedule usually lasts for 5-7 years in a 401(k) plan, while vesting in 403(b) plans is usually immediate.Difference Between 403(b) and 401(k) Plan
403(b) Plan vs 401(k) FAQs
What is a 401(k) plan?
A 401(k) plan is a retirement plan offered by an employer designed to help employees save for retirement.
What is a 403(b) Plan vs 401(k)?
The main difference is that 401(k) plans are offered strictly to employees in the private sector, while 403(b) plans are offered to non-profit organizations that are governed by Section 501(c)3 of the Internal Revenue Code.
What is the difference between a Roth 401(k) and traditional 401(k)?
With a Roth 401(k), taxes are paid as money is put into the retirement account. With a traditional 401(k), taxes are paid as money is taken out.
Are there other retirement savings plans other than a 401(k) plan?
Alternatives to 401(k) plans include traditional IRAs, Roth IRAs, pension plans (if your employer offers one), and 403(b) retirement plans for employees of non-profit organizations.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
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