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.Continue Reading
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 The funds can only be taxes when withdrawn from the account. If the money is withdrawn early, a significant tax penalty is imposed.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.Learn more about Financial Planning