Pin Me

What Is the Difference Between a 401(k) and 403(b)?

written by: M Lambert•edited by: Jason C. Chavis•updated: 7/16/2010

There are several different types of retirement accounts that you can choose from. The 401(k) and 403 (b) accounts are both offered by employers to their employees. Learn which one you will qualify for.

  • slide 1 of 1

    401k vs. 403b Retirement Plans

    Many people commonly confuse a 403(b) plan with a 401(k) plan. They may also mistakenly think that they have a 401(b) plan, which seems to be a combination of the two. A 401(b) plan does not exist, you either have a 401(k) plan or a 403(b) plan. The differences between the two plans are pretty small. The type of plan that you have depends on your employer.

    Most 403(b) plans are associated with people in education or with people who work for the government. The 403(b) plans operate pretty much the same way as a 401(k) plan with your employer offering a small employer match. Often participating in a 403(b) plan is mandatory, and your employer will automatically deduct a certain percentage from your wages. You can choose to increase your contributions and you will need to contact your human resources department to do that.

    Most 401(k) plans are offered all other types of employers. They may have a generous employer match program, or they may not. Often employers require that you work for a year before you are qualified to participate in the 401(k) program. You will also need to work for a certain amount of time before you are fully vested in your 401(k) plan. The average length of time is five years, with the percentage increasing with the length of time that you work there.

    It is important to participate in a retirement plan as soon as you qualify to do so. This will enable you to be able to retire comfortably. Once you have a plan you will have the option to choose the way that your contributions are invested. You can choose from a low risk low rate of return option or a high risk high rate of return option or you can divide the funds between the different options available to you.