Most people are familiar with the 401(k) plan, which is provided by many employers to allow employees to automatically save for retirement. But what about 403(b) plans? These retirement plans have more in common with 401(k)s than you might think. The biggest difference is that these plans are only offered to specific employers: nonprofit organizations, schools, churches, and some hospitals. So, if you don't work for one of these types of organizations, you're probably not familiar with this type of plan.
Similarities to a 401(k) Plan
In the early days, 403(b) plans were primarily called tax sheltered annuities, or TSAs. This meant there was little individual investment choices, and employees were required to place their money into this annuity. While there are still plenty of 403(b) plans set up strictly as a TSA, many have now evolved into spitting images of their 401(k) counterparts. This means that the plans may provide a number of different investments to choose from, the possibility of receiving a company match, and even traditional withdrawals without the need of using an annuity. 403(b)s typically have the same contribution limits and withdrawal requirements as a 401(k).
Some Differences
Aside from some minor legal requirements, if your 403(b) is structured like a 401(k), there is virtually no difference. This isn't true for the traditional TSA products. These types of 403(b)s may have very limited options. Another slight difference is the additional catch-up provision. Most 403(b) plans have a 15-year of service catch-up which allows employees who have worked for the same employer for at least 15 years to be able to contribute up to an additional $3,000.