If your employer offers both a 401(k) and a 403(b), you can contribute t🤡o both plans to boost your retirement savings. However, there are limits on ꧙the combined total of the contributions you can make in a tax year.

The contribution limit is $23,000 for 2024. (It was $22,500 for 2023.) For those aged 50 or older, the 澳洲幸运5官方开奖结果体彩网:catch-up contribution limit is an additional $7,500 for both 2023 and 2024. These are the same limits placed on contributions to either plan individually. So you are free to 🐻use both vehicles, but the capဣs on tax-deferred contributions remain the same.

403(b) and 401(k) Plans

The 403(b) plan is typically made available to employees of non-profits, public schools, tax-exempt organizations, and religious groups. Contributions are made in 澳洲幸运5官方开奖结果体彩网:pretax dollars, or, in the case of a Roth, 澳洲幸运5官方开奖结果体彩网:after-tax dollars. The employer may match a portion of the employee's contribution. The employee chooses how to invest the money based on options offered by the employer.

If this sounds similar to a 401(k), it is—at least from the employee's viewpoint. However, the 403(b) has fewer administrative requirements. In addition, a 403(b) is often administered by an 澳洲幸运5官方开奖结果体彩网:insurance company rather than an investment firm as is standard with 401(k) plans. Nevertheless, many 403(b) plans still have access to 澳洲幸运5官方开奖结果体彩网:mutual funds.

A 401(k) offers more investment choices to employees. Previously, a 401(k) didn't offer 澳洲幸运5官方开奖结果体彩网:annuities as an investment choice. The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 permits annuities to be offered as an investment choice for 401(k) plans. 401(k) holders have a long list of other options including stocks, 澳洲幸运5官方开奖结果体彩网:exchange-traded funds (ETFs), bonds, mutual funds, and 澳洲幸运5官方开奖结果体彩网:target date funds. A 403(b) only offers annuities and mutual funds. Overall a 401(k) offers more flexib🏅ility and choice regarding investments.

One Big Difference

There is one big difference between a 403(b) and a 401(k). For both plans, you must be at least 59½ to withdraw funds; otherwise, you'll need to pay a 10% early 澳洲幸运5官方开奖结果体彩网:withdrawal penalty.

However, 403(b) participants enjoy a bit more leeway regarding exceptions to the early withdrawal penalty. For example, you can take a distribution if you have a severance from your employer. For 401(k) participants, you must be at least 55 to take a 澳洲幸运5官方开奖结果体彩网:distribution following service separation. In either case, distributions are taxed at ordinary 澳洲幸运5官方开奖结果体彩网:income tax rates.

One More Catch-Up

As noted above, an employee aged 50 or older can contribute an extra $7,500 in both 2023 and 2024 to either plan. The IRS calls that a catch-up. It helps employees boost savings as their retirement date grows closer.

Another catch-up provision in the 403(b) plan applies to employees with at least 15 years of service if the employer approves it. It's worth checking out this rule if it applies to you and you can afford the extra contribution from your salary.

According to the IRS, "If permitted by the 403(b) plan, an employee who has at least 15 years of service with the same eligible 403(b) employer ... has a 403(b) elective deferral limit that is increased by the lesser of:

1. $3,000,
    
2. $15,000, reduced by the amount of additional elective deferrals made in prior years because of this rule, or
    
3. $5,000 times the number of the employee’s years of service for the organization, minus the total elective deferrals made for earlier years."

The Bottom Line

If your employer offers both a 401(k) and a 403(b), you can contribute to both plans, but there are limits on how much you can contribute. The contribution limit can be as high as $30,500 in 2024, if you are age 50 or older (it was $30,000 in 2023). However, the combined total con൩tributed to both accountsꦏ cannot exceed these limits.