457b vs 401k: Understanding the Differences

The 457b and 401k plans are two popular retirement savings options offered by employers, but they have distinct differences that can impact your savings and benefits.

A 457b plan is generally offered to government employees and certain tax-exempt organizations, while a 401k plan is offered to private sector employees.

One key difference between the two plans is the eligibility requirements. To be eligible for a 457b plan, you must be a government employee or work for a tax-exempt organization, whereas a 401k plan is available to most private sector employees.

The contribution limits for 457b plans are higher, with a maximum annual limit of $19,500 in 2022, plus an additional $6,500 if you're 50 or older, for a total of $26,000.

A 457b plan is an employer-sponsored, IRS-sanctioned, tax-deferred savings account that allows you to make pre-tax contributions towards your retirement.

You can have a 457b plan if you work for a state or local government, as it's specifically offered to these employees. Contributions are taken from your paycheck on a pre-tax basis, which lowers your taxable income.

A 457b plan is similar to a 401(k) or 403(b) plan, as it's also offered through your employer and allows for pre-tax contributions.

A 457 Plan is a type of employer-sponsored retirement plan, but there are actually two types: a 457(b) and a 457(f). A 457(b) is offered to state and local government employees, while a 457(f) is for top-level executives at non-profits.

A 457(b) plan is similar to a 401(k) or 403(b) plan, it's offered through your employer and contributions are taken from your paycheck on a pre-tax basis. This lowers your taxable income, making it a tax-deferred savings account.

One of the benefits of a 457(b) plan is that it's an employer-sponsored plan, meaning your employer is involved in setting it up and managing it. This can be a great way to save for retirement, especially if your employer offers matching contributions.

A 457(b) plan is a type of defined contribution plan, similar to a 401(k) plan, which allows employees to make pre-tax contributions or after-tax (Roth) contributions to amplify their retirement savings.

A 457b plan is a type of employer-sponsored, IRS-sanctioned, tax-deferred savings account that allows you to make pre-tax contributions towards your retirement. You may have also heard of a 457b plan referred to as a deferred compensation plan.

The annual maximum contribution limit for 457 plans is $23,000 for 2024 ($22,500 for 2023). This limit applies to both public government 457 plans and nonprofit 457 plans.

For employees over the age of 50, the plans contain a catch-up provision that allows up to $7,500 in additional contributions for 2023 and 2024. This provision is designed to help employees make up for years in which they didn't contribute to the plan.

You can also contribute up to $46,000 to a 457 plan for 2024 if you're within three years of normal retirement age. This is a unique feature of 457 plans that's not available with 401(k) plans.

Hardship distributions are allowed after an “unforeseeable emergency,” which must be specifically laid out in the plan's language. This can be a helpful option for employees who are facing a financial crisis.

Both public government 457 plans and nonprofit 457 plans allow independent contractors to participate. This is a great option for freelancers or consultants who want to contribute to a retirement plan.

If your employer offers both a 401(k) and a 457(b) plan, you have access to both types of retirement plans.

Public-service employees can take advantage of this perk, but it's essential to consider your individual needs and goals.

If your employer offers a 457(b) plan, it's a great option for saving for retirement, and they're a great option for growing your nest egg.

There are two main types of 457(b) plans to consider: governmental and non-governmental plans. Both types are deferred contribution plans, but they have different rules and regulations.

Governmental 457(b) plans are a good option for public-service employees who work for a public organization that offers both a 457(b) and 401(k) plan. This is because they offer similar benefits to employees.

Non-governmental 457(b) plans, on the other hand, tend to carry more risk. The plan's solvency hinges on the employer, which means that the money contributed doesn't come directly out of your paycheck.

Here are some key differences between governmental and non-governmental 457(b) plans:

It's worth noting that non-governmental 457(b) plans are technically owned by your employer, which can provide some asset protection benefits. However, this also means that the plan is subject to your employer's creditors.

Both 401(k) and 457(b) plans offer tax benefits and encourage employees to grow their nest egg.

If your employer offers a 401(k) plan, you can contribute up to $23,000 in 2024 and $23,500 in 2025, with an additional $7,500 in catch-up contributions if you're 50 or older.

However, if you have a 457(b) plan, you can contribute up to $23,000 in 2024 and $23,500 in 2025, with an additional $7,500 in catch-up contributions if you're 50 or older, or up to $11,250 if you're 60 to 63 years old.

You may also be able to contribute as much as twice the limit if you're within three years of normal retirement age, which is $46,000 for 2024 and $47,000 for 2025.

The key is to consider your individual circumstances and choose the plan that best fits your needs, whether it's a 401(k) or a 457(b) plan.

Public-service employees who work for a public organization that offers both a 457(b) and 401(k) have access to both types of retirement plans, giving you more options to consider.

Remember, it's essential to take advantage of any employer matching contributions, which can significantly boost your retirement savings account balances.

Both 457(b) and 401(k) plans offer tax-deferred contributions, allowing you to reduce your income tax liability each year. This means the money you contribute isn't counted as taxable income for that year.

You can make Roth contributions to both plans, which are made on an after-tax basis. This means you pay income taxes on the money before you contribute, but then you pay no taxes on the money when you withdraw it.

The annual deferral limits for 457(b) and 401(k) plans are the same, and may change from year to year. You can check the current limits to see how much you can contribute.

Some plans also allow catch-up contributions, which can be especially helpful if you're over 50. For example, you can make an additional contribution of $7,500 per year if you're over 50, or an additional $11,250 per year if you're 60 or older.

Here's a quick summary of the catch-up contribution limits:

Note that you can't make both the Age 50 Catch-Up and the Pre-Retirement Catch-Up in the same year.

Both 457(b) and 401(k) plans offer tax-deferred contributions, allowing you to reduce your income tax liability and grow your investments tax-free. This means the money you contribute isn't counted as taxable income for that year.

The annual deferral limits for both plans may change from year to year, and it's essential to check the current limits to make the most of your contributions. You can find the current limits on the relevant government websites.

Both plans also allow Roth contributions, which are made on an after-tax basis. This means you pay income taxes on the money before you contribute, but you won't pay taxes on the withdrawals as long as you meet certain conditions, such as being over age 59½ and having made the first contribution at least five years prior to withdrawal.

If you're over age 50, you can make an additional contribution of $7,500 per year to both plans. For participants aged 60, 61, 62, and 63, the additional contribution limit is $11,250.

457(b) plans are offered to state and local public employers, as well as some employees of non-profits, whereas 401(k) plans are typically offered to employees of for-profit companies. This means that public employees may participate in either or both plans, depending on their employer's offerings.

One key difference is that 401(k) plans do not offer a three-year Pre-Retirement Catch-Up, whereas 457(b) plans do. This allows 457(b) plan participants to double their contributions in the three years before their normal retirement age.

Another difference is that 401(k) distributions prior to age 59½ may be subject to a 10% early withdrawal penalty, whereas 457(b) plans generally do not have this penalty.

If you change employers, you can move the funds in your 401(k) to your new employer's plan, assuming they offer a 401(k), without a penalty if you follow IRS rules for a "rollover." However, this is not the case with 457(b) plans.

Public-sector and nonprofit organizations often offer 457(b) plans instead of 401(k) plans, and may also offer other employer-sponsored plans like 403(b) plans.

The 403b and 401k plans are two popular retirement savings options, but they have distinct differences.

The main difference between the two plans is the type of employer that offers them. 403b plans are usually offered to employees of private nonprofits and some government employees, including most academic hospitals, whereas 401k plans are typically offered to employees of private for-profit companies.

Employer contributions are also a key difference. 403b plans allow up to $69,000 in total contributions, including up to $23,000 from the employee and up to $46,000 from the employer, whereas 457b plans, which are similar to 403b plans, only allow a maximum of $23,000 in contributions per year.

If you're deciding between a 403b and a 401k, consider how the differences in contribution limits might affect you.

The annual contribution limit for 457(b) plans is $22,500 in 2023, and employees 50 and older can make an additional $7,500 catch-up contribution.

Employer-matching contributions to a 457(b) plan are less common, but if your employer offers a match, the total contribution limit (yours plus other additions) can’t exceed $22,500 in 2023.

For employees nearing retirement, there's a special catch-up provision that allows them to contribute greater amounts to their 457 plan account balance as compensation for prior years when they did not contribute to the plan.

Here are the special catch-up contribution limits for employees nearing retirement:

With a 457(b) plan, you can withdraw funds before retirement age without facing the 10% early withdrawal penalty, but you'll still be subject to a tax penalty.

457(b) plans are generally available for state and local government employees, as well as certain tax-exempt nonprofits.

Contributions to a 457(b) account are made pre-tax, which can lower your overall taxable income for the year.

You can make contributions up to the annual limit and invest these funds to grow your retirement nest egg.

Like many other retirement savings accounts, you'll need to pay tax on distributions you receive in retirement.

You don't have to wait until you are 59 ½ to start withdrawing contributions, you can begin withdrawing funds whenever you stop working at your employer.

Some 457(b) plans may force you to withdraw the entire amount in a very short window, leading to a difficult tax situation, so make sure you read the fine print and understand the withdrawal rules after separation from employment.

Governmental plans are a type of 457(b) plan backed by the government. This means they're generally viewed as less risky since they don't rely on an individual business or company.

Funds in a governmental 457(b) plan can be rolled over into other accounts such as an IRA or 401(k), offering more investment opportunities. The money is held in a trust.

You can think of a governmental 457(b) plan as a "bonus 403b" due to its unique characteristics.

One key benefit of governmental 457(b) plans is that they're not subject to the success or failure of an individual company, making them a more stable option.

If you're participating in a governmental 457(b) plan, you can contribute to both a 401(k) and a 457 plan at the same time. This is a great way to maximize your retirement savings.

Here are some key characteristics of governmental 457(b) plans:

Contribution limits for retirement plans can be complex, but understanding the rules can help you make the most of your savings.

The annual contribution limit for 401(k) and 403(b) plans is $23,000 in 2024 and $23,500 in 2025. This limit applies to both employee and employer contributions.

If you're 50 or older, you can make an additional catch-up contribution of $7,500 for 2024 and 2025. This brings the total contribution limit to $30,500 for 2024 and $30,500 for 2025.

For 457(b) plans, the annual contribution limit is also $23,000 in 2024, but with some special catch-up provisions. If you're 50 or older and within three years of retirement, you can contribute up to the lesser of twice the standard contribution limit ($46,000) or the standard contribution limit plus the amount of the standard contribution limit not used in prior years.

Here's a breakdown of the contribution limits for each type of plan:

Remember, these limits apply to both employee and employer contributions, and there may be additional rules and restrictions depending on your specific plan. It's always a good idea to consult with a financial advisor or plan administrator to ensure you're making the most of your contributions.

If you take distributions from your 401(k) plan before 59½, you'll face a 10% early withdrawal penalty and ordinary income tax.

Taking money out of your 401(k) before retirement age can be costly, so it's essential to consider the consequences.

You'll typically face a 10% early withdrawal penalty for distributions from your 401(k) plan, which can add up quickly.

In contrast, 457(b) plans don't have a 10% early withdrawal penalty, but withdrawals are still subject to income tax.

This difference in penalties can make a 457(b) plan a more flexible option in the case of an unforeseeable emergency.

Contributions to a 457(b) plan have some special rules to keep in mind. Employer-matching contributions are less common than in 401(k) plans, but if your employer does offer a match, the total contribution limit can't exceed $22,500 in 2023.

If your employer contributes to your plan, your contribution limit will be reduced. For example, if your employer contributes $5,000, your contribution limit would be $17,500 for the year.

There's a special catch-up provision for those over 50 and nearing retirement. You can contribute greater amounts to your plan account balance as compensation for prior years when you didn't contribute.

To take advantage of this provision, you can contribute up to the lesser of twice the standard contribution limit ($45,000 in 2023) or the standard contribution limit plus the amount not used in prior years.

Here's a summary of the catch-up contribution rules:

Keep in mind that if you elect the special 457 catch-up provision, you can't also elect the normal $7,500 catch-up in addition.