403B vs 401k Part 1

Understanding the retirement plan you currently have is probably step 1 to planning a successful retirement. Most people have 401k’s or 403b’s but don’t really understand how they work or affect them in retirement. You need to be able to make the most out of your plan so that you can retire comfortably.

Difference #1 – Although each are retirement plans, the 401K plan is for those working in the private sector. The 403 (b) is for those working for tax exempt non profit organizations, public school systems, certain religious organizations and government employees.

Difference #2 – FEES – The 401K plan does not get a break on administrative fees. Which also means, unlike the 403(b), many of these extra fees are passed on to you and can impact you to some degree financially.

Difference #3 – Management – Some employers may require an employee who is leaving to close their 401k account. This is because it costs a lot more in administrative fees to maintain the account.

Due to strict regulations, 401k plans are subject to ADP or average deferral percentage testing. Basically if a plan has pre-tax employee contributions an ADP test must be done. This is not required for 403(b) plans.

Source: 403B vs 401k Part 1

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