From the course: Financial Basics Everyone Should Know
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Choosing between 401(k) and 403(b)
From the course: Financial Basics Everyone Should Know
Choosing between 401(k) and 403(b)
- [Instructor] You might have heard about different types of tax-deferred investments without even knowing it. The two popular ones are 403bs and 401ks, but you need to know the high-level opportunities before you can invest in one. To begin with, tax-deferred investments are almost always a good option if your employer offers it. It's like a free raise. What I mean my tax-deferred investing is investing tax-free, but paying taxes when you withdraw plus a penalty if you withdraw early. Withdrawals of gains on your investments prior to age 59 1/2 typically subject you to a 10% penalty tax, in addition to the regular taxes owed. This penalty is to discourage you from withdrawing early. The IRS allows you to grow your funds tax deferred as an investment, to encourage you to save for retirement. So they penalize you if you want to use the funds before you retire. I mentioned a moment ago, there two major types of tax-deferred investments, 403bs and 401ks. Let's start with 401ks. For most…
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