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?

By Denise Appleby AAA
A:

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
(Contact Denise)

RELATED FAQS

  1. How are payments calculated on a Canadian Pension Plan (CPP)?

    Learn what factors are considered when calculating your Canada Pension Plan retirement benefits, and discover how to get ...
  2. Are Social Security benefits affected by unemployment benefits?

    Find out if Social Security benefits are affected by unemployment benefits, and if so, how much this benefit can be reduced ...
  3. What are the rules and restrictions on a Spousal IRA?

    Learn about the rules pertaining to spousal individual retirement account contribution and income limits. Find different ...
  4. Can I get both military and Social Security benefits?

    Learn how it's possible to receive both Social Security benefits and a military pension in retirement, and how retirement ...
RELATED TERMS
  1. Interest-Crediting Methods

    A credit method that determines how interest changes to a fixed ...
  2. Elder Care

    Elder care, sometimes called elderly care, refers to services ...
  3. Variable Annuitization

    An annuity option in which the amount of income payments received ...
  4. Eligible Transfer

    An IRS-allowed movement of assets into or out of an individual ...
  5. Death Master File (DMF)

    Also known as Social Security Death Index. A list of people whose ...
  6. Leveraged Benefits

    The use – by a business owner or professional practitioner – ...
Related Articles
  1. Roth IRAs: Investing And Trading Do’s ...
    Retirement

    Roth IRAs: Investing And Trading Do’s ...

  2. How Does A Reverse Mortgage Work?
    Retirement

    How Does A Reverse Mortgage Work?

  3. 5 Key Factors Your Financial Plan May ...
    Retirement

    5 Key Factors Your Financial Plan May ...

  4. The Right Place To Retire
    Retirement

    The Right Place To Retire

  5. Closing In On Retirement? Read These ...
    Investing Basics

    Closing In On Retirement? Read These ...

Trading Center