I'm a teacher. Which is better for me, a 401(k) or 403(b)? What is the difference? From whom do I get these plans?
The first step is to check with your employer regarding any retirement plan(s) it provides for employees, as you can only participate in a plan sponsored by your employer. As an employee, you are not allowed to adopt any employer sponsored plan, including 401(k) and 403(b) plans.
If your employer offers both a 401(k) and 403(b) plan, you may choose to participate in either or both (if allowed), depending on your preference.
Generally, you will find the 401(k) and 403(b) plans similar: the contribution limits are the same; both plans allow employees to make contributions on a pre-tax basis; both plans have the ability to offer loans to employees; and, for both plans, employees must meet certain requirements to be able to withdraw assets from the plan.
The key difference between 403(b) and 401(k) plans lies in the investment options.
403b investments are limited to annuity contracts or mutual funds and money market funds (the type of 403(b) will determine whether the investment must be annuity contract or mutual fund). The investment options for 401(k) plans include any publicly-traded securities, mutual funds, options, etc. The plan may limit the investments to a selected list prepared by the plan administrator.
If your employer does not sponsor a retirement plan at this time, you may consider contributing to a Traditional IRA or a Roth IRA. These plans with allow you to contribute up to $3,000 per year ($3,500 if your are at least age 50 by the end of the year for which the contribution is being made). In the meantime, you might want to consult with your employer about offering a retirement plan for employees.
This question was answered by Denise Appleby
The structures of the two are similar. I used to work with a lot of teachers, my sister is a teacher in the Minneapolis area. Considering most 401(k)s don't offer individual stocks or options, for practical purposes, they are often the same. It is up to your school to choose a plan. As mentioned in the Investopedia article, if they don't offer a plan, look at opening your own Roth or IRA. You might want to open one, even if they do.
You can't just set up a plan yourself, like a self-employee person, but you can lobby your school to start a plan. There are many low-cost easy options available today, with great low-cost transparent investment options. I often use Employee Fiduciary or Vanguard when I help clients set up plans. The best investments for most plans are low-cost Dimensional or Vanguard funds.
If you need a contact at Employee Fiduciary, feel free to reach out.
Good luck contacting human resources!
Mark Struthers CFA, CFP®
First of all, thank you for your patience and devotion to teach the future generations.
In a simple word, a 401(k) and a 403(b) are very similar and share the same purpose, save for your retirement with some tax advantages. Generally speaking, private companies use the 401(k) and public schools use the 403(b) as the saving vehicle. In addition, companies which use 401(k)s most likely choose mutual funds as their investment lineups for the participants, whereas school systems use annuities for their 403(b) options.
You may not have a choice to select either 401(k) or 403(b) for your retirement vehicle, but you do have the control of how much you can stash away. For 2017, the salary deferral is $18K, so it’s $1,500/month saving. The more you can save in the front-end, the easier it’s for you at the retirement time. Best!
The first part of your answer is an easy distinction. A 403(b) is a retirement plan that can be used by employees of certain government organizations, tax-exempt entities, and public schools. A 401(k) is a retirement plan that can be used by employees or an employee of a private sector company/organization. They both can use annuity or mutual fund options. Typically, you do not see publicly traded stocks as an option due to fiduciary issues.
Assuming you work at a school district, you have a lot of choices of who you can use. The most are insurance backed products or firms. I would recommend that you look at firms or an advisor who is fee-only and is willing to not just say that they work for you, but also willing to sign a Fiducairy Agreement for you and develop an Investment Policy Statement along with a plan.
I work with many in the education field in the K-12 and Higher Education marketplace. So please feel free to reach out as I can help you go through a possible landmind field.
If you are a teacher in a municipal school district, you will probably have a retirement account that is set up by the district and it will be a 403(b) plan.
If you teach in a private environment and they offer a retirement plan, it will probably be a 401(k) plan.
You have no choice which is offered.
Whichever it is, contribute. Also, if the school offers to match your contribution, contribute as much as is needed to get the maximum contribution from your employer.