Difference Between 403(b) vs 457
403(b) and 457 are well-designed postretirement plans for the employees of United States people.
403(b):
This is for Private & non-profit organizations, Public educational Institutions and if any other entity qualifies under IRS (Internal Revenue Service Are Charitable Institutions work exclusively for the tax exemption. This is the Defined-Contribution plan. This plan saves money on a tax-deferred basis. It was invested only in annuity contracts hence called as Tax Deferred Annuity Plans (TDA). Deferral means a small amount of money is saved for future income purpose post-retirement. Elective deferral is often used which is nothing but a contribution is made from salary to Retirement plans (403(b)). The employee should authorize before every transaction occurs for the safety purpose. All employee deferrals are made with pre-tax. The deducted amount will reflect on the gross income.
457:
457 has two types:-
- 457 (b) – This is for state & local government employees.
- 457(f) – This is for highly paid non-profit employees. 457 plan requires an employee to work until the agreed time. This is the plan only for the selected employees. Because this plan allows 100% contribution towards this plan from your income. So to receive 457(b), You should be highly talented and highly paid.
Head To Head Comparison Between 403(b) vs 457 (Infographics)
Below is the top 7 difference between 403(b) vs 457
Key Differences Between 403(b) vs 457
Both 403(b) vs 457 are popular choices in the market; let us discuss some of the major Difference Between 403(b) vs 457:
- 403(b) plan is offered to save money for retirement benefits for Private & non-profit organisations, Public sectors, Public educational Institutions such as schools.
- Whereas 457 plan is of two types:-
1. 457 (b) – this is for state & local government employees.
2. 457(f) – this is for highly paid non-profit employees.
- In 403(b) plan, Distribution of money starts from the age of 59.5. If you take money before the age of 59.5 at any cost, there is a penalty of 10% as your Early Withdrawal Penalty. In 457 plan, No penalties as such. However, you will not be able to take any deductions until you attain 70.5 years’ age. If you are working still, you can contribute to plans until you attain 70.5 years of age. If you are not working and want to take money before 59.5 years of age too, then there is no penalty.
Mandatory minimum distributions are calculated based on the life expectancy. It begins at the age of 70.5. If we fail to take it, it will result in a 50 % excise tax or indirect tax on the withdrawn amount. In 457 plan, there are no such criteria.
- 403(b)If an investor wants to have only one investment plan throughout is life, he can do it unless if he did not roll over to self-directed IRA. If he rolled over to IRA, the investor is in charge of all his investment decisions. 457(b) also as such asset diversification option but 457(f) does not have this option.
- 403(b):-
1) The annual Contribution limit is generally lesser of the employee’s compensations. It is $ 18500 in 2018.
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2) if your age is 50+, an extra $6000 contribution is allowed.
3) Lifetime catchment provision allows an additional payment of $3000/ year if you have at least 15 years of prior tenure or a paid average of $5000/year.
- 457:-
1) The annual Contribution limit is generally lesser of the employee’s compensations. It is $ 18500 in 2018.
2) if your age is 50+, an extra $6000 contribution is allowed.
3) If your retirement age < 3 years, extra $37500 payment/year is allowed.
- If an employee needs more investments to make, 403(b) is the best option. If an investor needs more time to invest for retirement, 457 is the best option.
- 403(b) has a lesser contribution limit whereas 457 allows you to contribute 100 % from your income (almost double of 403(b)’s contribution limit).
- 403(b) has a wider choice of providers than 457(b).
- Unlikely as 403(b), 457 is sometimes a measure to find out the talented employees as it is offered only for the special set of members by its employer not for everyone.
403(b) vs 457 Comparison Table
Below is the 7 topmost comparison between 403(b) vs 457
| The basis of comparison between 403(b) vs 457 |
403(b) |
457 |
| Withdrawal benefit | Distribution of money starts from the age of 59.5. If you take money before the age of 59.5 at any cost, there is a penalty of 10% as your early withdrawal penalty. | No penalties as such. |
| Matching contribution | Offers Matching contribution -an employer selects for his employee’s employer-sponsored retirements plan based on the pay he gets. | Rare matching contribution. |
| Best option to choose | Best to make more investment plans. | Best when more time for investment is needed. |
| Retirement benefit | Will have lesser benefits as it allows only small element can be invested. | Allows you to contribute the double amount (allows 100% from your income) hence benefits will be also very good. |
| Distribution limit | Mandatory minimum distributions begin at the age of 70.5, failing which will result in a 50 % excise tax or indirect tax on the withdrawn amount. | No such limits. |
| Annual Contribution limit | 1) The annual Contribution limit is generally lesser of the employee’s compensations. It is $ 18500 in 2018. 2) if your age is 50+, then additional provision allows you to contribute $6000. 3)Lifetime catchment provision allows an additional payment of $3000/ year if you have at least 15 years of prior tenure or a paid average of $ 5000/year. |
1) The annual Contribution limit is generally lesser of the employee’s compensations. It is $ 18500 in 2018. 2) if your age is 50+, then additional provision allows you to contribute $6000. 3) If your retirement age < 3 years, then additional catch up of $36000, you can contribute. It allows up to $37500 in 2018. |
| Rollover to IRA | Employees can roll over to self-directed IRA which allows Investors to be in charge of all the investment decisions as asset diversifications such as bonds, stocks, funds, etc. | Rollover to IRA option applicable only for 457(b) and not for 457 (f). |
Conclusion – 403(b) vs 457
When there are these 2 retirement plans with such numerous advantages, an individual; investor does not need to be dependent on only the default pension scheme provided by the employer. Employees can avail these plans and can get a benefit.
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