Three oft-used retirement plans in the United States – the 401(k), the 403(b) and the 457 – are similar in that they are all funded, at least in part, by employee salary reduction arrangements.The names of these three salary deferral plans relates to the section of the Internal Revenue Code which allows and governs them. The primary difference in these types of plans is the type of employer that utilizes them.
|401(k) Plans||Any non-governmental employer or a governmental employer that adopted the plan prior to May 1986|
|403(b) Plans||A 501(c)(3) organization (a charity) or an educational institution|
|457 Plans||A state or local governmental employer or a 501 organization|
These plans have many similarities, including:
- They all allow for a pre-tax salary deferral arrangement by the employees
- There are similar limits on the amount of salary deferrals allowed for each employee
- 401(k) and 403(b) plans allow for employer contributions to the plans. 457 plans, however, do not allow for employer contributions.
The overall contribution limits for 401(k) plans and 403(b) plans are significantly higher if the employer funds the plan. The 403(b) and 457 plans have some very favorable “catch up” provisions for older employees who have not saved enough for retirement while the 401(k) plan merely adds $5500 to the contribution limits for employees over 50. In all plan types the earnings on investments are tax-deferred. In theory, all plan types have similar investment options. But in practice, most 403(b) plans are limited to annuity contracts and 457 plans usually have very limited choices.
There are also some differences with respect to the withdrawal and rollover rules, for example:
- 457 plan participants are not subject to the 10% penalty for distributions prior to age 59½, while participants in 401(k) and 403(b) plans are.
- Participants in a 401(k) plan can roll over their account balances into an IRA, another 401(k) plan or a Keogh plan. The participants in the other plans are limited to rolling over their account balances into similar plans (i.e. 403(b) to 403(b), 457 to 457) or into an IRA.
We at Janguard are here to provide you with unbiased information and advice with respect to your retirement accounts, whether employer-sponsored or otherwise. For more information on salary deferral plans, IRA transfers or for answers to specific questions regarding profiting with your retirement accounts in 2015, call Janguard at 800.571.6341 and discover how easy it is to secure your independence with a self-directed IRA.