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This plan is nearly identical to a 401(k). For starters, a 403(b) plan allows employees to make contributions to their account before taxes. Like the 401(k), employees are allowed to contribute as much as they would like to their 403(b), so long as they stay within the annual contribution limit. Also, in some cases, a Roth 403(b) plan is available for after-tax contributions, but no taxation on withdrawals at the time of retirement. 403(b) plans are similar to 401(k) plans in that employers commonly offer a matching contribution program. Also, similar to a 401(k), employees may invest their funds from a 403(b) plan into different investing vehicles. However, 403(b) plans may only be funded by mutual funds and/or annuities. The main difference between a 403(b) and 401(k) plan is that 403(b) retirement plans may only be used by tax-exempt organizations such as charitable, religious and educational establishments.

403(b) plans offer an exclusive feature that other plans do not: the 15-Year Rule. If an employee’s past deferrals did not reach the contribution limit, the 15-Year Rule allows employees with at least 15 full years of service with the same company to make additional contributions to their plan of up to $3,000 more than the contribution limit.

Another significant difference between the 403(b) and 401(k) retirement plan is that employers of a 403(b) plan may also offer contributions to a 403(b) retirement plan on behalf of former employees for up to five years after an employee’s departure from the company. Former employees are immediately vested in these funds.