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401K advantages over 403b?


Guest Marty M

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Guest Marty M

I work for a non-profit 501©3 organization that has a 403(B) plan with employer contributions, as well as a voluntary employee contribution plan. Can we convert to a 401(k) plan? Are there any advantages to having a 401(k) plan instead of a 403(B) plan? I am so confused. ;)

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You might find the chart available by clicking this link helpful. The main reason for considering a 401(k) plan over a 403(B) plan would be if the 501©(3) organization were part of a controlled group with one or more organizations that were not 501©(3) organizations, and wanted to be able to have one plan for all members of the controlled group. This would be particularly true if some individuals worked for more than one member of the controlled group, since allocation of compensation (and by extension, contributions to a 403(B)) can be complicated in such cases. However, there is no provision for transferring or rolling over money from a terminating 403(B) to a 401(k). Thus, if you want to keep old and new money in the same plan, you'd need to just continue the 403(B).

Employee benefits legal resource site

The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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Guest Marty M

Thanks for the reply. To clarify, if we are a small 501© 3, and are not a part of another group that is not 501© 3. Given this, you are saying there is no advantage to changing and in fact we would have to "freeze" the funds in our 403(B) and open up new account with a 401(k)?

I have a couple of more question for you. I have talked to several people in small non-profit organizations that have SEP plans. Is this something that is possible? Since contributions are not availble through payroll deductions in a SEP plan, what are the options for a payroll reduction plan as well as an employer contribution.

Thanks for your indulgence and patience with me.

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Obviously, a lot depends on individual circumstances (e.g., what providers are available for each type of plan, and what their fees are). However, in general, for most small 501©(3)s that already have a 403(b) plan, switching to a 401(k) does not make sense. (Have I put enough lawyer weasel words in there yet? ;) )

With regard to SEPs, I deal mostly with larger employers and plans, and none of my current clients have SEPs. Thus, I haven't looked at the rules recently enough to even hazard a guess. However, perhaps someone else here will have a response. Or you could try the SEP, SARSEP and SIMPLE Plans board.

Good luck!

Employee benefits legal resource site

The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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