What Are the Distinguishing Characteristics Between a 401k and 403b?


Quick Answer

The biggest distinguishing characteristics between a 4019k) and a 403(b) are that the 401(k) plan is only offered by for-profit or private companies, and a 403(b) plan is available by government employers and non-profit entities, says Investopedia. Profit sharing from the sponsored employer is not allowed in 403(b) accounts.

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Full Answer

403(b) plans generally offer a smaller range of investment opportunities, notes About.com. Employers of the beneficiaries of a 403(b) plan can match payroll-deducted contributions, which is generally an employment incentive. The contributions can grow tax-free for many years, which results in a large increase in the initial investments. The funds can only be taxes when withdrawn from the account. If the money is withdrawn early, a significant tax penalty is imposed.

For 401(k) plan withdrawals, they are taxed as regular income, states About.com. If the beneficiary does not meet the requirements for early withdrawal, a tax penalty is imposed. Those requirements for early withdrawal include the beneficiary becoming disabled, making child support or alimony payments as ordered by a court, or terminating employment at or above 55 years of age. If the beneficiary withdraws due to any of the allowed circumstances for early withdrawal, he is only subject to income tax.

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