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It is Monday, March 29th — the last Monday of the first Quarter. Holy cats.
Last week I talked about IRAs vs 401(k) retirement accounts and this week I wanted to introduce you to 401k’s older cousin, the 403(b). These two are pretty similar but, again, there are key differences.
The most noticeable difference between these two is who they serve: 401(k)s are for public sector employees while 403(b)s are only available for employees in public schools, governments, and certain non-profits.
Another key feature is that many 403(b)s may not have follow the ERISA rules that 401(k) savings accounts do. It all depends on how involved the employer is. If participation in the plan is totally voluntary and the employer does NOT add money to their employee’s accounts, the employer can skip ERISA oversight and a lot of paperwork that comes with it.
403(b)s historically hold participants’ money in annuity contracts rather than investment accounts — in fact, you might hear the terms 403(b) and Tax-Sheltered Annuity (as abbreviated as TSA – So now if you see those letters in your retirement plan documents you know they aren’t talking about how many times you can go through the airport security guys using your retirement money) 403(b)/ Tax-Sheltered Annuity= interchangeable. but because of this annuity account structure, people with 403(b)s often have less available investment options. This isn’t necessarily a bad thing; Since for most people having less choices for something they don’t have a strong knowledge of is helpful!
The important part to remember about these two is that neither one is inherently better or worse. The key is that whichever one you have access to, you have to use it! Both plans allow you to save up to $19,000 per year in a tax-advantaged account that will grow for your future. That’s pretty important.
Seriously, this stuff is not easy. The CFP® exam tests hopeful planners on TWENTY-TWO different legal types of retirement savings arrangements and accounts. Book a free initial consultation with me if you have questions about your options: https://calendly.com/valkyriefinancial/consult