Skip to main content
FamilyEducation
FamilyEducation
Family Education

FE-Menu

  • Pregnancy
    • <blank>
      • Pregnancy Tracker
      • Trying to Conceive
      • Signs & Symptoms
      • Pregnancy Health
    • <blank>
      • Baby Names
      • High Risk Pregnancies
      • Preparing for Baby
    • <blank>
      • Concerns & Complications
      • Labor & Delivery
      • Postpartum
  • Baby Names
    • <blank>
      • Browse All Baby Names (A-Z)
      • Top Names for Boys
      • Top Names for Girls
      • Baby Name Generator
    • <blank>
      • Baby Name Lists & Ideas
      • First Names By Origin
      • Browse All Last Names (A-Z)
      • Last Names by Origin
  • Babies
    • <blank>
      • Caring For Your Baby
      • Baby's Health
      • Feeding Your Baby
    • <blank>
      • Your Baby and Sleep
      • Baby's Growth & Development
      • Baby Hygiene
    • <blank>
      • Baby Safety
      • Baby Products
    • <blank>
  • Toddlers
    • <blank>
      • Toddler Growth and Development
    • <blank>
      • Toddler Behavior and Discipline
    • <blank>
      • Your Toddler and Sleep
  • Kids
    • <blank>
      • Health
      • Childhood Development
      • Fitness & Nutrition
      • Childhood Safety
    • <blank>
      • Communicating with Your Kids
      • Childhood Behavior and Discipline
      • Fostering Responsibility
      • Instilling Values & Manners
    • <blank>
      • Childcare
      • Neurodiversity in Kids
      • Adopting Children
  • Teens
    • <blank>
      • Teen Health
      • Teen Puberty & Sex
    • <blank>
      • Behavior & Discipline
      • Teen Social Development
    • <blank>
      • Values & Responsibilities
  • Activities
    • <blank>
      • Printables
      • Indoor Activities
      • Learning Activities
      • Arts and Crafts
      • Performing Arts
      • Food Activities
      • Outdoor Activities
    • <blank>
      • Books
      • TV
      • Movies
      • Online
      • Quizzes
      • Games
      • Celebrities
    • <blank>
      • Parties
      • Travel
      • Toys
      • Holidays
      • Gifts
  • Learning
    • <blank>
      • By Grade
      • By Subject
      • College
      • Preschool
    • <blank>
      • Back to School
      • Study Skills
      • Learning Styles
    • <blank>
      • Homeschooling
      • Parental Involvement
      • Your Child's School
  • Family Life
    • <blank>
      • Mom Life
      • Dad Life
      • Family Relationships
      • Having a Healthy Marriage
      • Divorce
    • <blank>
      • Health & Fitness
      • COVID Resources
      • Managing Your Home
      • Moving Your Family
      • Pets
    • <blank>
      • Family Finances
      • Work
      • Families and Food
  • NewslettersNewsletters
    Newsletters

Breadcrumb

  1. Home
  2. Family Life
  3. Family Finances
  4. Understanding Family Finances
  5. 401(k) Plans And The 403(b)

401(k) Plans and the 403(b)

Here is a good explanation of 401(k) retirement plans and the IRS code section known as 403(b).
  • facebook share icon
  • pin
  • twitter share icon
  • email share icon
  • Print page icon

In this article, you will find:

  • Page 1
  • Page 2

Page 1

401(k) Plans and the 403(b)

A section 401(k) plan, commonly known simply as a 401(k), is a qualified profit sharing plan that gives an employee the option of putting money in the plan (up to $10,500 per year) or receiving taxable cash compensation.

You either can take the money home as additional pay, or have the funds deposited into a 401(k) plan for you. An employer usually adds a percentage of the employee's contribution to the employee's plan.

Both your money and your employer's contribution are made with pre-tax money. That means that the income you contribute to your 401(k) isn't considered taxable income at this time. It will, however, be taxable when it's withdrawn.

The 401(k) accounts were introduced in 1982, and became extremely popular in the ensuing years. In fact, employees sometimes get frustrated when their employer doesn't provide a 401(k).

Go Figure

Most employees like 401(k) plans because they're flexible. You're normally permitted to change the amount of money you contribute at least once a year.

Money Morsel

A good way to increase your 401(k) contribution is to automatically add any salary increases to the amount you save. You'll be glad in the long run.

If you have a different type of plan, however, don't assume that you're being cheated by not having a 401(k). Another type of plan is likely to do as well, or perhaps even better. They're certainly preferable to no employment plan, and, 401(k)s do have many advantages. They're not, however, the only game in town.

While many employers match (or partially match) 401(k) contributions by employees, it's not required. Some employers contribute nothing. Maybe the employer can't afford to contribute to the plan, and simply offer the 401(k) as a means for their employees to contribute to a retirement fund, or your employer offers the 401(k) plan as a supplement to an already existing retirement plan.

When an employer doesn't contribute, all the contributions to the 401(k) come from an employee. The employer would pay only to install and administer the plan.

If your employer does contribute, however, it's important for you to put enough money in your 401(k) plan to take advantage of the company match. If your company matches dollar for dollar up to 3 percent of your salary, for instance, then you should by all means contribute at least 3 percent. If the company puts in dollar for dollar all of your contribution up to 6 percent, make sure you're putting away 6 percent in your 401(k).

It's important that you have a good understanding of your 401(k) plan. You should be aware of when you're able to change the amount of your contribution and move your money from one investment to another.

Employees get to decide where to invest their 401(k) funds from a list of choices provided by the employer. A greater number of choices increases the cost of the plan, so most employers provide about six choices.

If you have a 401(k), you should try not to touch it until retirement. If you need to, however, if there is a “hardship,” there is a special provision that allows you to get your 401(k) money early.

Under the hardship provision, you can withdraw from the plan while you're still working for the firm that provides the plan. You don't need to quit to get your money out of the retirement plan. You just ask your employer for the money. Your employer must make sure that the reason you need the money falls within the IRS guidelines. If your need qualifies as a hardship, you'll get your money.

You don't need to repay the withdrawn funds, but you'll need to pay tax on them at the end of the year. Tax is withheld when you withdraw the funds.

Next: Page 2

What's hot

  • Eye color genetic chart Family LifeWhat Color Will My Baby'…
  • 10 Signs of Divorce Family Life10 Signs Your Marriage is Over
  • woman standing on scale Family LifeWhat's a Normal BMI for…
  • Young girl eating a oatmeal with berries after a workout Family LifeCalorie Intake for Weight…
NewslettersNewsletters
Your partner in parenting from baby name inspiration to college planning.
Family Education
FamilyEducation does not provide medical advice, diagnosis or treatment. Your use of the site indicates your agreement to be bound by our Terms of Use and Privacy Policy. Information on our advertising guidelines can be found here.

FE Footer

  • Newsletter Center
  • About Us
  • Privacy Policy
  • Editorial Policy
  • Editorial Team
  • Expert Panel
  • Cookie Policy
  • Site Map
  • Contact Us
  • Advertise
  • Terms of Use
  • Do Not Sell My Info (for CA Residents)
sandbox learning logo
Family Education is part of the Sandbox Learning family of educational reference sites for parents, teachers, and students. 

factmonster logoinfoplease logoTeacherVision logo

sandbbox logo
©2022 Sandbox Networks Inc. All rights reserved. Sandbox Learning is part of Sandbox & Co., a digital learning company.