403(b) and 457(b) plans are both retirement savings accounts offered by certain employers. They share some key features, but also have some important differences:
Similarities:
- Tax advantages: Contributions are made with pre-tax dollars, reducing your taxable income for the year. Earnings on the investments grow tax-free until withdrawn in retirement.
- Investment options: Both plans offer a variety of investment options, like mutual funds, to help your savings grow.
- Catch-up contributions: If you are 50 or older, you may be able to contribute additional funds each year beyond the regular limits.
Differences:
Eligibility:
- 403(b): Offered by public schools, certain non-profits, and some religious organizations.
- 457(b): Offered by state and local governments, and some non-profit organizations.
- Both allow employers to contribute to employee accounts.
Contribution Limits:
- 403(b): Total contributions of $66,000 in 2024, with a $22,500 employee contribution limit, or $30,500 catch-up limit if you are over 50 years old.
- 457(b): Lower contribution limit of $23,000 in 2024 (including any employer contributions).
*Contribution limits will generally increase yearly.
Withdrawals:
- 403(b): Subject to a 10% penalty for early withdrawals (before age 59 ½).
- 457(b): More flexibility: withdrawals generally allowed at any time without penalty, but income taxes must still be paid on the withdrawn amount.
A 457(b) might be better if you need more flexibility to access your funds before retirement. A 403(b) might be better if you want more investment options, or your employer offers matching contributions. If you are employed by a public sector organization or a non-profit, it's a good idea to see if they offer either of these plans and consult with a financial advisor on which is right for you.
Important Information:
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