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. If an employee chooses to follow the plan then a fixed amount is taken out of their paycheck, taxed then deposited into the account. Many employers will also match your deposit, but they are not obligated too.

Although the amount that is taken from their paycheck is taxed, any gains that the employee makes while their money is in the account is not taxed until it is withdrawn.

The 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 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 a 401k vs 403b plan visit http://benefitsattorney.com/modules.php?name=Content&pa=showpage&pid=1

Return From What is a 401K plan to stock trading Terminology