What is a 401K plan and how is 403b plan different?

What is a 401K plan? How is a 403b plan different from that? Creating a 401K retirement plan will greatly help you down the road. Without it many Americans would be unable to retire and would not be able to enjoy their golden years.

Simply put a 401 savings plan occurs when an employer offers their employees a chance to set aside part of their income (up to a certain limit) to invest for the long term in a tax free account. The money is taken out of your paycheck and invested before it can be taxed. So it lowers your tax burden.

If an employee chooses to follow the plan then a fixed amount is taken out of their paycheck, taxed then deposited into the account.

If you are lucky your employer might match what you invest into your plan or put in a percentage of what you put into your plan. For, instance if your employer matches you $.50 on the dollar with your plan and you invest $1,000 into your 401k your employer will deposit an additional $500 into your 401k.

If your employer does do this it is worth taking them up on the offer if you can afford too, after all it means free money and it will greatly help you out in the long term.

What About Gains On Your Money

The amount that is taken from their paycheck is not taxed when you invest into it, but what about the money that you make off of the interest? All gains that the employee makes while their money is in the account is not taxed right away. Of course you don’t get away with it that easily. You will be taxed on your money once you withdraw it.

The 401k withdrawal rules state that an employee may not take money out of their account if they are under 59.5. If they take an early withdraw there are penalties that they can face. If an employee needs money they can take out a loan from their account, but must follow the 401k loan rules and pay it back within a certain time frame.

A 403b plan is similar, but set up for government positions and non-profit organizations. Like the 401k plan the 403b is subject to the same restrictions. The major difference is that the employer is not responsible for the account; they only need to deposit the money.

If you would like to see more about what is a 401k plan and a 401k vs 403b plan visit http://benefitsattorney.com/modules.php?name=Content&pa=showpage&pid=1

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