Both a 403(b) and 457(b) are types of retirement savings plans, but there are some key differences between the two. One of the main distinctions is that a 403(b) is sponsored by a employer, while a 457(b) is offered through an individual’s own account. Additionally, contributions to a 403(b) are typically tax-deductible, while those to a 457(b) are not. It’s important to understand the differences between these two types of plans before deciding which is best for you.
What is 403(B)?
403(B) is a retirement savings plan that is available to employees of public schools and certain non-profit organizations. 403(B) plans are similar to 401(k) plans, but there are some important differences. For example, 403(B) plans are not subject to the same annual contribution limits as 401(k) plans. In addition, 403(B) plans typically have more restrictions on withdrawals than 401(k) plans. However, 403(B) plans do offer some advantages, such as the ability to make catch-up contributions for those over the age of 50. Overall, 403(B) plans can be a valuable tool for saving for retirement.
What is 457(B)?
457(B) is a retirement savings plan that is sponsored by an employer. Employees can choose to contribute a portion of their paycheck to the 457(B) plan, and the money is then invested for the employee’s retirement. 457(B) plans have many benefits, including tax-deferred growth and the ability to make catch-up contributions if the employee is over the age of 50. 457(B) plans are also portable, meaning that they can be rolled over into another retirement account if the employee leaves their current job. As a result, 457(B) plans are a great way to save for retirement, and they can provide employees with peace of mind knowing that their future is well-protected.
Difference between 403(B) and 457(B)
403(B) and 457(B) plans are both retirement savings plans offered by employers, but there are some key differences between the two. A 403(B) plan is a tax-deferred retirement savings plan available to employees of public schools and certain nonprofit organizations.
- A 457(B) plan is a tax-deferred retirement savings plan available to state and local government employees, as well as employees of certain nonprofit organizations. Both 403(B) and 457(B) plans allow employees to contribute pre-tax income to the plan, but the contribution limits are different.
- For 403(B) plans, the 2019 contribution limit is $19,000, while the 457(B) contribution limit is $19,000. 403(B) plans also have catch-up contributions available for employees over age 50, while 457(B) plans do not.
- Another difference between 403(B) and 457(B) plans is that 403(B) plans are subject to early withdrawal penalties, while 457(B) plans are not. However, both types of plans have similar rules regarding distributions after retirement age. Overall, 403(B) and 457(B) plans are both excellent retirement savings options, but it’s important to understand the key differences before choosing one.
Conclusion
The main difference between 403(b) and 457(b) plans is that contributions to a 403(b) plan are tax-deductible, while contributions to a 457(b) plan are not. Both types of plans allow employees to save for retirement on a tax-deferred basis. Which type of plan is best for you depends on your individual situation.
