A 401(k) Plan is an employer-sponsored, salary reduction and qualified retirement plan that allows employees to defer paying current federal income taxes on a portion of their annual compensation. Contributions and earnings grow tax-deferred until they are withdrawn. Withdrawals are taxed at the employee’s income tax rate at the time of withdrawal. The name 401(k) comes from the IRS section describing the program.
A 403(b) Plan is a salary reduction plan for employees of nonprofit organizations and government entities such as schools, hospitals, and educational organizations. Like a 401(k) Plan, contributions and earnings are tax-deferred until the money is withdrawn from the plan and withdrawals are taxed at the employee’s income tax rate at the time of withdrawal.