401K and 403B Plans

by Retirement Advisor | Aug 10, 2022 | 403b

The most well-known retirement plan in US companies today is the 401(k). 401(k) accounts are available to nearly all employees of corporations as well as most self-employed persons. A 401(k) retirement plan is a savings investment account for individual employees of corporations.

A 403(b) retirement plan is a very similar plan to the 401(k) with the exception that it is used for nonprofit entities. Both the employee and the employer are allowed to contribute funds each year to the employee’s 401(k) or 403(b) account, with the employee allowed to contribute up to a maximum of $18,000 (for an employee under 50 years of age in 2017).

Contributions to these accounts are made on a “pretax basis.” This means that when funds are put into the account, they do not count as taxable income for the individual. Once the individual retires and begins to remove funds from the account, they pay income taxes on the distributions at their current tax rate, which tends to be lower at retirement.

The earliest point at which the contributor can withdraw money without incurring a penalty from a 401(k) or 403(b) account is at age 59½. Many employers that offer a 401(k) or 403(b) provide a matching contribution up to a set maximum. Matching dollar for dollar is a 100% return on your investment….(read more)