401K and 403B By: Lexi Sears

What is a 401K and 403B plan? 401K: A retirement plan for a business that have an outcome of a profit. Ex. Clothing stores, casinos, and car insurance buildings. 403B: A retirement plan for a business that doesn’t run for a profit. Ex. Public schools, churches and some hospital organizations. This is often a supplemental retirement plan that employees choose to open to supplement another retirement plan such as a pension.

Who can contribute? 401K and 403B: The employer The employee Note: for 403B plans often the employer does not contribute to the plan. Who controls where they are invested? 401K and 403B: The holder of the plan controls where they want it to be invested.

What kinds on investments can the money be invested in? Stocks-most risky, most growth Bonds-less risky, less growth Money-least risky, almost no growth How should you invest the money? Invest most in high risk, invest the rest in medium or low risk. High risk gets you more money. Don’t invest all your money in one place or high risk because you can lose a lot of money.

Are the moneys that you invest insured? Some of your money can be insured. For your money to be insured you would need to talk to an insurance company to come up with a annuity contract. The annuity contact can be fixed or variable. Fixed annuity are contracts where an insurance company with give you a minimum rate of interest. Variable annuity is a contract with an insurance company where you make a lump sum of money into a tax deferred. There plans do not have to be invested in annuities, but then they have no insurance. Annuities are insured and the insurance is only as strong as the company that insurance them. Resource:

Are contributions pre-tax or post-tax? Why does it matter? 401K and 403B: Pre-tax It matters because paying less tax on assets as distributions usually occur during retirement, when an employee may be in a lower tax bracket.

What is the minimum and maximum that you can contribute? 401K: Maximum contribution under 50 is 16,500 Catch-up contribution over 50 is 5,500 What else you can contribute depends on what your employer allows you to. Normally you can put up to 15% of your annual salary. 403B: There is a process to find the maximum yearly contribution that depends of multiple factors. See

Is your employer required to contribute 401K Plan? How does it work? Employers are not required to contribute. “Employer matching of 401(k) funds is not required by law. The employer contribution is completely voluntary. Most large corporations offer employee retirement matching programs because it provides them with a tax break.” ( contributions.html)law

Is your employer required to contribute to a 401K Plan? How does it work? What they contribute depends on what the company chooses to contribute to the your plan. The average employer contribution is 3.0% of your pay ( Employers enroll their employees into a program that does it automatically

What is diversification and how does it work? Investing portfolios across different asset classes. How you break it up depends on the risk you want to take, goals and time. Is diversification important? Why? Yes, so you can spread your money around different asset classes. If you put all your money in one asset class if it fails you would lose all your money.

What are the fees associated? Depending on what 401K or 403B plan you have depends on the fees that you would have to pay. Everyone has the fee to whoever would mange your plan, fees to operate it. Your company could have revenue sharing, meaning all the money the employer and employees put in go through out the company.

Can you borrow against? How does that work? Yes, you can put your retirement fund for collateral and would imply wanting money from a bank. The loan is repaid with after tax money and interest. How safe is your money? Your money is safe unless you invest it in risky investments.

What happens if you change jobs? Do nothing. Cash out the money to pay for transitions from your job. (worst option) Roll assets over to new employer plan. Roll the account into an IRA.

When can you start to withdraw the money? What are the conditions? The employee… reaches retirement age, which is defined under the plan Becomes disabled Reaches age 59.5 If there are early withdraws the employee may have to pay a 10% additional tax. You must start to withdraw money by age 70½.

Quiz 1.What is a 401K and 403B plan? 2.Who can contribute to these plans? 3.What are three places you can invest your money into and what are the risk levels? 4.What is the percentage you can put into according to your annual salary? 5.What is diversification and why is it important? 6.How is your money not safe in a 401K and 403B? 7.What are three things you can do if you change jobs? 8.What is the condition that you can withdraw money before they reach 59.5 or retirement age depending on the plan?

Answers 1.401K a retirement plan for a business that have an outcome of a profit. Ex. Clothing stores, casinos, and car insurance buildings. 403B a retirement plan for a business that doesn’t run for a profit. Ex. Public schools, churches and some hospital organizations K the employer and the employee; 403B mostly the employee. 3.Stocks-most risky, most growth. Bonds-less risky, less growth. Money-least risky, almost no growth. 4.Normally can put up to 15% of your annual salary in 401K ; 403B depends on several factors.

Answers 5. Investing portfolios across different asset classes. How you break it up depends on the risk you want to take, goals and time. 6. Your money is safe until you invest it in risky investments. 7. Do nothing. Cash out the money to pay for transitions from your job. Roll assets over to new employer plan. Roll the account into an IRA. 8. If they become disabled.