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)

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