The 401k and 403b is one of the best ways for a person to build wealth as an employee. This is the most powerful way an employee can take advantage of tax savings, while increasing his savings.
They are offered by the largest companies and get their names from the section of the law from which they are created. The main difference is what type of employee you are and who you work for. 401k’s are available to corporate employees, while 403b’s are only available to people who work in non-profit organizations, schools, and other similar workplaces.
There are laws that limit the amount of money you can contribute, but you can save a lot of money tax-deferred. Most likely, your employer will match the money you contribute at a certain percentage. These two critical factors make this your most important weapon in your goal of building wealth. They have some of the same features including the following:
There is a significant amount of tax savings you can have. You can contribute 15 percent or up to a maximum of $11,000 before taxes. The limits will eventually increase over time as inflation rises.
You can borrow from your account for major purchases. You can buy your first home, pay your education expenses, pay medical bills or other emergencies.
If you’re over age 50, you can make more deposits called catch-up deposits to help you retire. This will allow you to contribute more than the allowable limit.
Your employer will match the money you deposit. They will contribute a certain amount at the beginning of the year or each pay period. It all depends on how you structure the plan.
There are offers that can help you go beyond the set limit of 15 percent or $11,000. Talk to your human resources department at work or talk to your accountant about what’s allowed and the different strategies you can take to build your wealth with the 401k and 403b.