The Difference Between 403(b) and 403(b)(7) Plans

Q. What is the difference between a 403(b) plan and a 403(b)(7) plan?

A. Before 2009, there was a definite distinction between a 403(b)(1) and a 403(b)(7) — there was no requirement for employers to have a plan, so employees signed either an annuity contract (403(b)(1)) or a custodial agreement (403(b)(7)).

Fast forward to today: now, the employer maintains a 403(b) plan where the investments either can be in an annuity contract (403(b)(1)) and/or in a custodial agreement (403(b)(7)) where the investments are in mutual funds.

Note that many referred to the annuity investment as a 403(b) and left off the (1) which makes this even more confusing!