Diferencia entre los planes de jubilación 401K y 403B (con tabla)

While I am pretty sure that most of you have a handful of information about the 401k retirement plan but not many of you will be aware of the 403b retirement plan.

A 403b retirement plan is a tax-deferred retirement scheme that allows you to save some pretax dollars up to $16,500 per year, from your annual wage.

In case, if you have chosen some mutual funds and annuities as your money for investment then the 403b plan is monitored by the wealth management company chosen by the organization you work for.

401K vs 403B Retirement Plans

The difference between 401K and 403B retirement plans is that 403b is executable only if you are a part of any non-profitable organization like a hospital or an educational institute. However, a 401k retirement plan is applicable to all the employees whose organization is profitable and has its own set of advantages.


 

Comparison Table Between 401K and 403B (in Tabular Form)

Parámetro de comparación401k Retirement Plan403b Retirement Plan
DefiniciónA 401k Retirement Plan is a post or pretax plan where an employee can make tax-deferred contributions from their annual wages.The 403b Retirement Plan is a very niche plan that is limited to nonprofit organization employees like Schools, government institutions and hospitals.
ParticipantesRegular daily wage earner or employee.Teachers, Doctors, Government Employees, Nurses, etc.
Institution TypeAny profitable firm or institution is allowed to give its employees the benefits of this scheme.All the non-profitable firms or institutions are allowed to give their employees the benefits of this scheme.
Employer Match RateThe 401k retirement plan offers significantly higher employer match rates comparatively.With all the legal rights for the institution to allow employees matches to its employees, the match rates are relatively lower. So, the employees do not loose on ERISA exemption.
Program AdministratorsThe 401k retirement plan is administered by most mutual fund companies.The 403b retirement plan is monitored and administered by different insurance companies.
Limits for Investment OptionsThe 401k retirement plan is limited by a lot of mutual funds investment opportunities.The 403b retirement plan is limited by majorly different annuity options.

 

What is 401K?

A 401k is a tax-deferred retirement plan that gives the employees of any organization to save and invest their pretax money based on the sponsorship from the employer.

As per the IRS guidelines, and the maximum limit, the employee can decide how much money they want to deduct from their wages and contribute to the 401k retirement plan.

However, you are never forced to follow the scheme as it is completely optional. It is completely up to the plan sponsor that is your employee to plan the retirement scheme as per the rules and guidelines of the government.

Thus they should be well aware of the following concepts before planning;

  1. What is the maximum limit for Retirement plan 401k?
  2. What is the age limit for the plan?
  3. What are the minimum and maximum tax deduction they can avail?
  4. What is the investment relocation option they could get from this scheme?

The various investment options that the employee will have under this plan are;

  1. Exchange-traded funds (ETFs)
  2. Cash Alternatives
  3. Different Investment Vehicles

Also, we must make you understand that this is not by any case your savings account. A 401k is just a retirement plan that is not easily accessible in case of sudden urgency or emergency.

Therefore, it is equally important to have your savings in place for difficult times and plan your “Summary Plan Description” separately for the 401k investment scheme.

Thus, employees should understand that by contributing their part of wages towards the 401k retirement plan they are saving their pre-tax income and amount of tax-deductible.

 

What is 403B?

A 403b retirement is an annuity plan that is tax shredded for employees of any nonprofit organization including schools, medical institutions, and hospitals.

In this plan either the employer can contribute on behalf of the employees or the employee may decide to contribute on their own, some part of their taxable income.

As per the government guidelines all the employees who come under Code Section 501(c)(3) tax-exempt organizations, are eligible to apply for a 403b retirement plan.

The major benefit of this plan is that it is pretax i.e. the amount you put in 403b retirement plan will not be taxed by the government.

The various employees that can avail the benefits of this plan are;

  1. Doctores
  2. Teachers
  3. Nurses
  4. Government employees etc.

As per the plan termination guidelines mentioned by the state government, one can easily terminate the plan as per their convenience.

Thus, employees should comprehend that by subsidizing their part of wages towards the 403b retirement plan they are saving their pre-tax income and amount of tax-deductible anyhow in any case possible.


Main Differences Between 401K and 403B]

Although both are methods of pre-tax savings, there exists a lot of difference between 401k and 403b retirement plans when it comes to participating audience and guidelines.

  1. 401K offers more investment options like stocks, bonds, money market funds, etc. and 403b just offers mutual fund and annuities investment options.
  2. 403b has relatively less government regulation when compared to a 401k plan.
  3. In addition to the $19000 contribution limit which is same for both plans, the eligible participants of 403b can contribute extra $3000 if they have been working in one single organization for more than 15 years.
  4. 403b plan requires all the high-cost options and therefore the fees are less in case of 401k plans comparatively.

 

Conclusión

It doesn’t matter which retirement plan you choose; what matters is you start with at least one of them. It is really critical to have an idea of all the expenses and costs that are involved in the overall plan.

Thus, be an informed person before investing your money in any of the opportunities available to you.

Also, remember that if there is an employer match option available then it is a SMART choice, even to opt for an expensive plan.

But all in all both 401k and 403b retirement plans are great tools for pre-tax saving and investment.


 

Referencias

  1. https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-403b-tax-sheltered-annuity-plans
  2. https://www.iscebs.ca/Documents/PDF/bqpublic/bq414f.pdf
  3. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1937795