Retirement Planning for Teachers and Education Professionals!
403(b) vs 401(k) What’s the Difference?
As a teacher, creating lesson plans, lecturing, and evaluating students’ grades takes up most of your day and leaves little time to plan for your financial future. Whether retirement is five years away or 25 years down the road, our team has the experience and skills to help you prepare for life after the classroom, so you can enjoy retirement! If you're looking for a partner to help you understand your state teachers’ pension, the importance of a 403(b), and provide a personalized financial analysis, we're the right partner for you.
It is our pleasure to offer retirement planning to teachers and education professionals. Our team of agents are excited to help you reach your financial goals. Contact us today for your free consultation and take the first step toward enjoying your retirement.
403(b) vs 401(k) What's the Difference?
| The two most common forms of retirement accounts for employees are the 401(k) and 403(b). You may ask, “What is the difference between 401k and 403(b) plans?” The major difference between the two is that 401(k) plans are offered to employees of for-profit companies, while 403(b) plans are offered to non-profits, such as public-school employees.
The good news is there is very little difference between the two plan types. |
Contribution and Withdrawal Similarities
Both the 403(b) and 401(k) plans have the following annual contribution limits:
- Employees can contribute up to a maximum amount of $20,500.00 in 2022, and
- For employees ages 50 and older, the contribution limit increases by $6,500 for a total of $27,000 in 2022.
- There is one difference between the 403(b) and 401(k), if you have served 15 or more years with your current employer, the 403(b) will allow you to contribute an additional $3,000 per year.
Tax-Advantage Savings
Both the 403(b) and 401(k) plans offer tax saving benefits, such as:
- Tax-deferred growth, simply meaning earnings and gains will grow tax-free until withdrawal or retirement income started. This will allow your account value to benefit from years of compounding interest and returns.
- Pre-tax savings, your contributions are deducted from your check before taxes are deducted. Therefore, you are reducing your taxable income and increasing your retirement savings.
Withdrawal Rules
403(b) and 401(k) plans share similar rules around withdrawals. Generally, you’re not able to take a withdrawal from either plan type while still employed with your employer until reaching age 59 ½, though there are certain IRA exceptions. If you do take a withdrawal before age 59 ½ and don’t qualify for one of the IRS exceptions, you could be assessed a 10% penalty in addition to income taxes.
Some 403(b) and 401(k) plans offer a loan option where tax-free withdrawals can be made, though this is contingent on making payments back into the plan until the loan is paid off.
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