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Understanding a 401(k) and 403(b)

Most companies offer employees a standard 401(k) savings plan for retirement. This plan allows an employer to contribute a portion of the employee’s wages into an individual account. They may also make contributions on behalf of employees, or match their contributions. These wages aren’t subject to taxation until distribution. If you work for the government or other organizations (including non-profits),they may also offer you a 403(b) plan, which operates similarly, but has lower administrative costs.

Since these plans are setup for retirement purposes, you can not easily withdraw the money prior to retirement (retirement age is currently 59.5 in the USA) without being subject to penalties and high taxes.

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