457 vs 403b

Difference Between 457 and 403b

457 plans are offered to employees that work under state and local government or non-profit organizations and it requires the employees to work until a designated period of time while 403b plans are offered to employees that are working under government, public schools, or private non-profit organizations and here the money is sheltered for a period of 15 years.

Retirement plans come in a variety of forms that employers can provide as a benefit to their employees, falling into one of two major categories: Defined Benefit plans or Defined Contribution plansDefined Contribution PlansA defined contribution pension plan is when the employer and the employee frequently make a significant amount of contributions to enable employees to save a decent amount of money for the retirement period and leave with the utmost dignity in their retirement phase.read more. Most companies will opt for a Defined Contribution plan, which provides the control in the hand of the employees. 403b and 457 are two such employer-sponsored plans.

Let’s discuss in detail about 457 vs 403b plans and what they have to offer for the future to come.

What is a 403 (b) Plan?

457-vs-403b

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What is the 457 Plan?

457 plan comes in two variants 457(b) and 457(f). Mostly local and state government level employees are offered a 457(b) plan, whereas non-profit employees who are highly paid are offered a 457(f) plan.

  • 457(b): The contribution limit is $18,500 per annum, and if your age is more than 50 years, then you are also allowed to contribute an additional $6,000. Also, if you are close to within three years of the normal retirement age, then you are allowed to contribute up to $36,000. It also comes with a catch-up option as well. It allows roll over like a 403(b) plan.
  • 457(f): This plan is mostly offered to a selected group of employees of an organization and requires them to work until an agreed-upon tenure. If they leave before that time period, then they are not entitled to any right on the 457(f) plan. It allows you to contribute 100% of the income and hence provides a lucrative feature while recruiting talented personnel. It does not allow any rollovers.

457 Plan vs 403 b Plan Infographics

Let’s see the top differences between the 457 vs 403 b plan with infographics.

457-vs-403b-info

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457 vs 403 b Comparative Table

Basis457403(b)
DefinitionIt is a bi-variant plan offered to people in government jobs or non-profit organizations with 457(b) being more liberal as compare to 457(f).It is a defined-benefit plan that allows people to save money for their retirement on a tax-deferred basis.
ContextIt is mainly offered to employees working in local or state government or to highly paid employees of non-profit organizations.It is mainly offered to employees working in academic institutions.
TypesIt comes in two variants: 457(b) for local and 457(f).There are no sub-section or variants to this plan.
Usage457(f) serves as a recruiting tool while hiring talented employees.It is used as an additional retirement saving scheme with benefits similar to that of 401(k).

Conclusion

Overall the plan you choose depends on the company or the organization you work for. You may have little control over the investment options offered by your employer, but both plans offer the benefit of saving for the rainy days through 457b and 403b and are very similar to each other.

Also, there are many things to consider while investing in the future, and hence, one should plan, reach, and execute based on one’s risk appetiteRisk AppetiteRisk appetite refers to the amount, rate, or percentage of risk that an individual or organization (as determined by the Board of Directors or management) is willing to accept in exchange for its plan, objectives, and innovation.read more and income. If eligible, one should try to max out the savings limit in both the plans in order to save big time for the retirement to secure a future with at least one thing less to worry about.

Recommended Articles

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