What's the difference between a 401(k) and a 403(b)?

Question

Also, can I roll over my 401(k) into a 403(b) if I change jobs?

Answer 1

Alexander is close on this one. It is true that they are virtually the same except that the 403(b) is in certain institutions like doctors and teachers.

Here is the biggest difference. A 401k can only have money rolled out of it when you leave that company (this means when you are fired, quit, or if the company goes through a merger). A 403b can be rolled out to an IRA anytime you wish.

Now for your second question. I have to ask why you would want to do that. A 401k may allow you to pick from 6-8 funds and a 403b may allow you to pick from even more. Why not just roll it into an IRA where you can choose from thousands? The new company doesn't match your previous amounts, so there is absolutely no benefit from moving into a new 401k or 403b plan.

Answer 2

These are two different code sections that allow salary deferrals into a retirement plan. A 403(b) plan can only be offered by a qualified 501(c)(3) charitable entity such as a school.
The problem with the 403(b) plan arrangement is that it is an annuity type arrangement that will generally have higher expenses and numerous restrictions on moving money out of the plan, even if you leave the employer.
You can rollover into or out of any qualified plan to another or from a qualified plan to an IRA or back from an IRA to a qualified plan. This is based on the employer plan accepting such rollovers.
I generally agree that rolling to an IRA can be better from an investment point of view. But you need to know what funds and advisers to trust. There are many brokers out there who will put you in funds that pay the broker a lot of money out of your funds and don't necessarily put you in investments that are appropriate for you.

Answer 3

It is essentially the same thing, 403(B) is for educational institutions, i.e. Universities, schools etc. They work exactly the same way, so if you work for a University your employer will offer you a 403B. But tax treatment and everything else is exactly the same. Oddly, you can not commingle funds from two plans, say if you worked for a University and had a 403(B) and now have a 401(K) you can not roll one account into another, you have to keep them separate. I don’t know why.

Answer 4

Nate - I agree with you in general, but there is one reason to roll over into a company's 401k (and presumably 403b) - because you can get a loan against a 401k, and you can't with an IRA.

I would think this is important to people who don't have their first house yet.