401(k)s are a primary pillar of most people’s retirement plans, with tax benefits that can save you thousands over the long run. Companies in most industries offer a 401(k) plan, but if you work in certain sectors you might be offered a 403(b) instead. These two types of investment vehicles are essentially the same. However, the guide below looks at some of their differences.

401(k)

401(k) investment plans are one of the most popular benefits in America, allowing employees to make tax-deferred contributions of up to $19,500 every year. Any money put into a 401(k) can be deducted, maximizing the impact of your investments. The funds in a 401(k) aren’t taxed until you make a withdrawal, at which point it’s counted like any other income.

Many employers offer contribution matching and profit-sharing programs, which can help your 401(k) investments grow even faster. Because these accounts are typically administered by mutual funds, employees of private companies often have a wide range of investment options.

403(b)

Instead of a 401(k), certain employees of schools, tax-exempt organizations, and some ministers may qualify for a 403(b). In many respects, the tax and retirement planning benefits of a 403(b) are essentially identical to a 401(k). In both cases, contributions grow on a tax-deferred basis, with no liability until you make a withdrawal later.

Organizations that offer 403(b) accounts typically don’t have contribution matching components and aren’t allowed to provide profit sharing. Since most of these organizations are nonprofits, there wouldn’t be any profits to share, anyway. Unlike 401(k)s, 403(b) accounts are usually run by insurance companies, so options may be more limited and feature more annuities than mutual funds.

Retirement planning can be a confusing process, especially when you’re facing a wide range of options that make it hard to decide the best approach. The consultants at Christina Mendoza & Associates LLC Insurance and Financial Services are passionate about helping people throughout Bexar County, TX, protect their legacies and achieve their goals, whatever they might be. Follow their Twitter for more financial advice, visit their website for an overview of their services, or call (210) 389-5289 to start planning your future today.