401(k)s, 403(b)s, IRAs-So Many Retirement Savings Accounts. What's the Difference?

By Al Dickenson
March 6, 2023

Though it may seem odd to suggest a college student plan for their retirement before they even begin their career, long-term, this may be one of the biggest decisions a college student can make. Knowing the differences between some of the largest retirement savings accounts can save you money along the way, and prevent you from making costly decisions.


Probably the most talked about retirement plan is the 401(k). This retirement plan is offered to nearly all full-time and some part-time employees of for-profit, private companies. Since much of the American workforce is employed by this type of employer, it is likely why we hear so much about them. A 401(k) is similar to many bank accounts in regards to how they make their money: investment. Your money from your paycheck goes into the account, then the money in the account is invested into stocks, mutual funds, annuities, bonds and so forth to earn interest. 401(k)s are probably the best and easiest way for people to plan their retirement, as once the money goes into your account, the organization holding the plan will handle the investment aspect of it.

Most 401(k)s also offer an employer match. This means that up to a certain percent of your paycheck can be matched by your employer to go into your retirement account. The most common employer match rate is five percent (5%), but it can be more. It is always recommended to match whatever your employer offers. This is essentially free money that is given to you during your tenure at the company. Some companies may play with the numbers a bit (for instance, offering a full match up to four percent, then half match up to six percent, meaning they will put in five percent if you put in six), but it is usually best to play those games if possible and within reason.


The 403(b) is basically identical to the 401(k) in terms of its purpose, scope, and development. According to Ramsey Solutions, the biggest difference is probably the types of employers that can offer this retirement plan. Whereas 401(k)s are offered by private, for-profit corporations, 403(b)s are provided by non-profit groups. The most common employers for this plan include schools, hospitals, and churches, so if your desired career path leads you to a role in one of these directions, most likely you will have a 403(b) retirement savings plan. There are other differences in the plans, however, namely what kind of investments the 403(b)s can be put into. The non-profit options are a little more limited, only being allowed to invest in annuities and mutual funds, whereas the for-profit plans have more options. Additionally, on occasion, non-profits may not offer as high of (or at all) employer matches.

Individual Retirement Arrangements (IRAs) may be the most widely tossed around phrase when it comes to investing. There are two types of IRAs: traditional and Roth. The important item to note is that all 401(k)s and 403(b)s are IRAs. However, you, as an individual, can set up your own, personal IRA(s) independently of any employer or other organization. For the purposes of this article, however, we will focus on employer-offered IRAs.

Some IRAs are invested without tax. In other words, the gross amount of your 401(k)/403(b) contribution, alongside your employer match portion, is immediately invested into your retirement plan. No taxes are taken out. If you invested 5% and your employer matched it, then 10% total will be invested into your 401(k)/403(b). This option is not tax free, however. Eventually, when you retire and withdraw the money saved, you will have to pay the taxes on the money that was not taxed previously. That could be upwards of 45 years or taxes due. Those taxes will add up quickly. This is known as a traditional IRA.

Roth IRAs, however, have their funds taxed as they are placed into the account. This means that there will be no taxes extracted when you withdraw your money as you retire. The benefit of this is that no matter how much money you save in your retirement fund, it will all be yours as you withdraw it (except the employer matched portion-that remains taxable). In the long term, this can save you thousands of dollars and avoid any struggles you may have as you retire. If at all possible, invest in a Roth IRA or Roth 401(k)/403(b).

Though you may not need to access the money you save for retirement for another 40 plus years, it never hurts to know what your future will hold. The worst thing to do is to make costly mistakes early in your career, only to try to scramble to fix them later in life. By having an idea of how retirement savings work, you can set yourself and your future up for success. Maybe there will be some options for setting up a 401(k)/403(b) at your first job out of college, maybe your current part-time job offers you this benefit already. Either way, take advantage of the money you can save and invest now, while still young. The amount put in will only increase with time.

Al Dickenson

Al Dickenson graduated from Wisconsin Lutheran College with bachelor’s degrees in history, communication, and English. He currently serves as an editor for an international equine practitioners’ magazine in and around Milwaukee, Wisconsin, his hometown, where he lives with his wife. He also works as a freelance journalist, photographer, archivist, and historian, and he enjoys hiking and reading, particularly about history.
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