What is the difference between a 401K and a 403B?

Question

Is there a difference? Please explain in Taxes for dummy form. I have no clue what this all means. All I know, is that I get money taken out, and build a savings. lol

Oh, and when I leave my current employer which I have the 401k, and then go to the new employer which has the 403B, can I take out money before I put it in the new plan? Will I be taxed?

Answer 1

401k and 403b are essentially the same thing, and are named for the section of the tax code that discusses them. 401k is for for-profit corporations and businessess
403b is for non-profit organizations and schools.

There are both retirement accounts, and you can invest in retirement account separate from your company. These include traditional IRAs and Roth IRAs which are open to everybody, and SIMPLE and Keogh accounts if you're self-employed.

If you roll the money directly from one 401k to another 401k or 403b account, the money isn't taxed, but you have to be explicit that the money is paid directly to the account and not to your personal pocket.

All these retirement accounts are great because they reduce your taxable income, and the money grows tax-free. With IRAs, you have a choice between paying tax on the money you put in (Roth IRA), or the money you take out at retirement (traditional IRA). It's important to note that you shouldn't depend on Social Security for your retirement; it's unlikely the program will fail or run out of money by then, but even in the best case it will still pay only a fraction of your current income.

Answer 2

The "401(k) plan," the popular name for a qualified cash or deferred arrangement (CODA) permitted under Section 401(k) of the Internal Revenue Code (IRC), is one of the most popular types of employer-sponsored retirement plans.

A 403(b) plan is a special type of employer-sponsored retirement plan for certain religious, public educational, and tax-exempt organizations. Typically, the employer either purchases annuity contracts for eligible employees, or establishes custodial accounts to be invested in mutual funds or other investments. In the case of annuity contracts, a 403(b) plan is sometimes referred to as a tax-deferred annuity or a tax-sheltered annuity plan (TSA). Depending on the specific type of 403(b) plan, plan contributions may be made by only the employee, only the employer, or both employee and employer

A 403(b) plan is not a qualified retirement plan, but it mimics such a plan in that it enjoys similar tax benefits. The most significant benefit is that participating employees are generally not taxed on their plan benefits (including both contributions and investment earnings) until they begin to receive distributions from the plan. Although an employer tax deduction may be possible, this is usually of little or no value, since the employer is exempt from income tax anyway.

Generally speaking, 403(b) contributons are not matched, while most 401(k)s have some employer matching provisions for contributions.

Answer 3

You should have the money taken out of your 401k and transfered into a Rollover IRA. If you set up a Rollover IRA with an online brokerage company (Scottrade, Firstrade, etc), they will transfer the money and you will not have anything taken out that you have to replace in order to pay taxes. If you took it out yourself, they would withhold 10% and you would need to replace that 10% out of your own money in order to avoid taxes. You eventually get it back, but it is a hassle you don't need. A 403b is for a nonprofit or government and a 401k is for a forprofit company.

Answer 4

Yes, 401K is for private companies and 403 B is for government.....they are essentially the same thing, not sure if you can transfer between the 2.

You must be going from the private sector to a state or govt job?

Answer 5

Well i a not sure what the difference is except the letter. I truely think they do that just to confuss investers and to pick letters and numbers that noone else has and then they are able to say urerka a new investment plan!!! Shame on them.