When the phrase "retirement plan" is mentioned, most people might think of a 401k plan. The 401k plan is by far one of the most popular retirement plan options available to working Americans. However, for employees of public schools and some tax-except organizations, the 403b retirement plan will most likely be the norm.

What is a 403b Retirement Plan?

The 403b retirement plan accepts payroll-deducted contributions for those enrolled. The goal is to help these employees build retirement income over the course of their working careers. Just like a 401k, employees contribute a percentage of their salary into the retirement account. The contribution amount is capped at a given max dollar amount or percentage set by the Internal Revenue Code, so it's important to ask what that maximum amount is.

A few advantages of a 403b retirement plan include the following:

  • Contributions and earnings are tax-deferred
  • You can withdrawal at age 59 1/2 without penalty
  • You may be able to obtain tax credit for contributing to a 403b
  • The account will grow due to compounding interest

What is the Difference Between a 401k and 403b Plan?

  • Eligibility. The main difference between these two plans is who is eligible for them. Nonprofit companies, public school employees, religious groups, and some government organizations are eligible for 403b plans. Administrative costs for 403b plans are lower which helps organizations better help their employees save for retirement.
  • Cost. The cost of a 403b plan for employees will depend on three things: 1) The extent of service the management company provides, 2) What the employer decides to invest in, and 3) Who the management company is. On average, the cost of providing a 403b plan for employees may be much smaller.
  • Contribution Limits. 401k and 403b plans both have contribution limits, though the two may varry from year to year. Some 403b plans allow employees with at least 15 years of service to add additional funds to their deferral limit every year, but it is important to check with your employers regarding this detail.

When to Contact Cape Cod Wealth Strategies & Insurance Services, LLC

Whether you are an employee or an employer for any of the industries listed above, we recommend contacting a retirement specialist to maximize your retirement savings or to maximize your employee benefits. There are dozens of ways to save for retirement, and our financial advisors can help customize a plan that works for you. Contact us today to schedule a consultation regarding your 403b retirement plan.