Understanding Your 401K and 403b Plans

Every working American should put away some money for retirement. A couple of the more common vehicles for retirement savings are the 401k and 403b plans. Both of these plans are tax-deferred and serve to reduce current income tax obligations. They can also grow over time to make up a good nest egg provided that people continue to contribute.

The main difference between the 401k and the 403b is related to the types of business that set them up. For-profit companies will offer the 401k while those businesses and charities that work in the nonprofit sector offer the 403b. Both have a 17,500 limit on annual contributions, but those who are older than 50 can contribute additional make up contributions to help their nest egg grow.

Many employers will match employee contributions to these retirement plans. Therefore, it is a good idea to contribute at least as much as the employer will match. If it is a dollar for dollar match, those who save are able to get a 100 percent return on investment the minute it is contributed. The major complication some people might have with these plans is the requirement that the money must be kept in the plan without withdrawal until age 59 1/2. Those who take out the money before this point are likely to get at 10 percent penalty in addition to any applicable taxes.

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