Differences Between 403(b) And 401(K) Plans

What are the ongoing differences between 403(b)s and 401(k)s?

There are a handful of differences. First and foremost of course is eligibility. Eligibility for 403(b) plans is limited to 501(c)(3)s and public state colleges and universities and K-12. Section 401(k)s are available to all employers with the exception of governmental employers who are generally not permitted to establish new 401(k) plans. Section 403(b) plans generally can only be funded with annuity contracts and mutual funds. The universal availability rule applies to salary reduction contributions to 403(b) plans instead of nondiscrimination testing. Section 401(k)s are subject to the ADP test, the Actual Deferral Percentage test.

The 15-year catch-up rule is available only for 403(b) plans, and employer contributions to a 403(b) plan can continue to be made on behalf of a terminated employee for up to five years from severance of employment.

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