401(k) vs 403(b) | Retirement Planner

401(k) & 403(b) - Which Is Right For You?

Everything You Need to Know about 401(k) & 403(b) Planning

There is a lot of confusion about retirement planning, because everyone has different advice for you. The truth is the retirement plan that’s right for you will not work for everyone else. Our financial advisors can help you with planning for retirement by aligning your financial situation with your goals and timelines. Planning for retirement is complex, which is why you want to work with experts.

What Is a 403(b) vs. a 401(k)?

401(k)s and 403(b)s are both employer-sponsored, tax-deferred retirement accounts. The 401(k) is probably the most common defined contribution plan, and it allows you to use pre-tax income to save for your retirement. Your employer may match some of your contributions, allowing you to build your nest egg even faster.

A 403(b) is essentially the same thing. 403(b)s are also retirement accounts that allow you to deduct your contributions from your taxable income. However, 403(b)s are only used by nonprofit organizations. Therefore, what type of plan you have depends on your employer. If you’re looking to switch jobs, consider the retirement benefits before you make a final decision.

How Employer Contributions Work

When employers set up a retirement plan for their employees, they have to meet certain rules and regulations. This is to ensure they don’t discriminate against some of their employees by reducing their retirement benefits. Often, employers match a certain percentage of your contributions up to a capped amount, based on your salary.

If your employer matches some or all of your retirement contributions, we recommend you take advantage of it. Most times, your employer will not contribute to your retirement account unless you do the same. We can help you figure out the details of your 403(b) or 401(k) and help you maximize your retirement savings.

How to Maximize Your Retirement Savings

If possible, you should max out your retirement contributions to your 401(k) or 403(b). If you still have money to save toward retirement, we can also help you open up an individual retirement account and additional investment accounts. The more you can invest in your future, the more comfortable you will be during retirement.

When you contribute to your employer-sponsored retirement plan, you can reduce your taxable income at the same time. This might leave you with more money to contribute toward your IRA, which you can also deduct on your tax return. With our expert guidance, you can maximize both your tax deductions and retirement savings.

FAQs about 401(k) Planning

Can I Deduct 401(k) Contributions on My Tax Return?

Yes. The IRS allows you to deduct your 401(k) contributions from your taxable income. This reduces the amount of tax you have to pay. If the deductions move you to a lower tax bracket, the tax savings can be significant.

Can I Convert My 401(k) to a Roth Account?

Yes. But when you convert a traditional retirement account into a Roth account, you have to pay taxes on all of it. If you want to convert your investments to a Roth account, you may choose to convert only part of your assets every year to space out the taxes.

Is My 401(k) Big Enough to Retire On?

There isn’t really a magic amount for the size of your retirement account. How much you need to save to retire depends on your income needs, your projected life expectancy, and your tax bracket. You also need to think about your other streams of income, such as Social Security benefits. If you want to know how much money you need to retire, please call us directly.

Let Us Guide Your 401(k) and 403(b) Planning

Retirement planning is a necessity, but the process is complex. Whether you have a 401(k) or 403(b), we’re here to help you select the best investments and make sure you’re taking advantage of all available tax deductions. Call Meridian Investment Advisors to discuss your retirement plans.