The name itself comes from a section of the IRS code—literally, section k —that was passed into law in A guy named Ted Benna, a benefits consultant for large companies, studied the tax code and created the concept of a k program in the fall of Think of a k as an egg carton and your investments as the eggs. Your money goes to work and produces a profit through the investments within the k. We recommend you invest in growth stock mutual funds.
Make regular contributions and let your money hang out with its two best friends: time and compound interest. If you missed the section about k plans, go back and read it. Because guess what? That means if you work for a hospital, school, university, church or nonprofit, chances are you have access to a b account. For all practical purposes, though, it functions just like a k. So, why is it called a b? You guessed it—the plan is outlined in section b of the tax code.
Your employer determines which plan they offer you. However, vesting occurs much quicker with b plans than with k , with many b s offering immediate vesting to its employees. Additionally, b plans offer an additional catch-up bonus for employees even if they are under Lastly, the investment options vary significantly between k s and b s.
While k s offer about 19 different investment options on average, b offer only a few mutual funds that participants can choose from. This is because insurance companies often administer b plans, whereas k s are usually administered by mutual fund or investment companies.
Try Beagle Subscribe! Solo k. Find k s. Try Beagle. Thank you! Your submission has been received! Tags k. Related Post. What to do with inherited k from parents? Both k and b plans are tax-advantaged, employer-sponsored retirement plans. Each account plan is named for the sections of the IRS code that explain their structure: k and b , respectively.
The key difference between k and b plans is the organizations that can sponsor them. Private, for-profit corporations offer k plans, and non-profit organizations or government employers can offer b plans. There are also some structural differences between the two. For example, b plans used to be annuities, though this limitation ended in , and each plan type continues to offer slightly different investment options.
For-profit companies can sponsor k plans that allow their employees to make tax-deferred contributions for retirement. Employees can make pre-tax or post-tax contributions up to a contribution cap amount established by the IRS every year.
These options include matching contributions, non-elective contributions, and profit-sharing features. Employers may make contributions to incentivize long-term employment. The earnings that your contributions make grow on a tax-deferred basis. Failure to wait until the approved requirement age before making withdrawals can result in penalty fees. So can failing to take RMDs once you turn When you leave an employer, your k comes with you.
The downsides of k s include their fees and their limited investment options. Depending on your plan, you may or may not have access to low-fee options or investments with a high rate of return. A b plan operates very similarly to a k plan. Public schools, organizations that are exempt from paying taxes under c , and qualified ministers offer these plans.
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