Q: I have a 401(k) with my old employer, and my new employer offers a 403(b) and a 457. What are the differences between them?
401(k), 403(b), and 457 plans are three types of qualified retirement plans offered by many U.S. employers. The basic idea is the same, but there are a few small differences.
All three are tax-advantaged ways to save for retirement. You can choose to have contributions deducted from your paycheck, which can then be invested in a variety of funds offered by your plan. Contributions to all three grow tax-deferred. Most contributions to the plans are tax-deductible (unless your plan has a Roth option), meaning that the money you choose to withhold from your paycheck doesn't count toward your taxable income.
Now for the differences. 401(k) plans are the most common, and are generally offered by for-profit, private-sector companies. You can contribute up to $18,000 of your salary to a 401(k) in 2017, with an additional $6,000 catch-up if you're 50 or older. Employers can choose to match a certain amount of your contributions to your 401(k).
A 403(b) plan is basically the 401(k) plan of the public and non-profit world. The same $18,000 contribution limit applies, as well as the $6,000 catch-up. In addition, 403(b) plans may permit additional catch-up contributions of up to $3,000 per year for employees with more than 15 years of service. Like 401(k) plans, employers can choose to contribute money as well.
457 plans have some major differences from the other two. First, 457 plans are offered in addition to another retirement plan, mainly by government employers and non-profits. The same $18,000 and $6,000 limits apply, but since these are supplemental plans, employers don't contribute on employees' behalf. And finally, you don't need to be age 59 1/2 to withdraw your money, like you generally do with the other two.
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