403(b) vs. 457(b): Key Differences

403(b) vs. 457(b) Plans: Key Differences

Both 403(b) and 457(b) plans are tax-deferred retirement savings accounts offered by employers, but they have key differences in eligibility, contribution limits, and withdrawal rules.

Eligibility

• 403(b): Typically offered to employees of non-profit organizations, such as schools, hospitals, and charities.
  
• 457(b): Primarily offered to government employees at the state and local level.

Contribution Limits

• Both plans have annual contribution limits, which are adjusted periodically.
  
• 457(b) plans often allow for higher catch-up contributions in the years leading up to retirement.

Withdrawal Rules

• 403(b): Generally, you'll face a 10% early withdrawal penalty if you withdraw funds before age 59 ½, plus income tax on the withdrawal amount.
  
• 457(b): Offers more flexibility. While there's typically a 10% penalty for early withdrawals, the penalty is waived if you leave your job. However, you'll still pay income tax on the withdrawal amount.

Other Considerations

• Investment Options: The types of investments available in each plan can vary.
  
• Loans: Many 403(b) plans allow loans, while 457(b) plans typically do not.

Which is better? It depends on your individual circumstances, including your employer, age, and retirement goals. If you have access to both, you might consider contributing to both plans to help maximize your savings.