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Let’s talk retirement options: What are the differences between 401(k) plans, 403(b) plans and IRAs?


First, the similarities. All three vehicles provide tax advantages for contributions made toward retirement and for investment income and capital gains earned along the way. The two numbered plans, which refer to sections of the U.S. Tax Code, are offered by employers, while IRAs are set up by individuals (the acronym stands for Individual Retirement Account or Arrangement).
The employer-sponsored plans generally offer more generous tax breaks than IRAs and other comparative advantages. Much larger employee contributions can be deducted, and employees receive any contributions that employers match tax free. IRAs are entirely self-funded – no help from the boss – and the already smaller tax deductions dwindle even further for accountholders if they also participate in an employer-sponsored plan and their salaries exceed certain levels.
IRS Publication 590 discusses IRAs in detail, and Publication 560 covers employer-sponsored plans.
-Conrad de Aenlle