403B Retirement Savings Plan vs. 457 Retirement Savings Plan
The majority of educators have heard of the popular 403B retirement savings plan,
but many have not heard of a 457 retirement savings plan. The
457 has several features that make it more attractive than a 403B while still
having the advantage of tax deferral.
Before discussing the difference between the two vehicles it is
important to discuss the similarities of the vehicles.
Both retirement vehicles are pretax and have the same
current contribution limits of $16,500 per year with a $5,500 catch provision
for participants 50 or older. In
addition, they both require mandatory distributions at age 70 ½, and typically
they both allow loans for the account holders.
In addition, they both have the same portability to other vehicles,
unless the plan document restricts it.
Even though there are similarities between the two plans
they also have several differences. One
of the main differences is between the restrictions the employee has on taking
distributions. The 403B distributions
cannot begin until the employee is 59 ½ and if the employee takes a withdrawal
they will encounter a 10% penalty for early withdrawal from the government, and
the 457 allows the employee access once the employee separates from
service. This is a crucial difference
since many employees have the opportunity to retire before they are 59 ½. In addition, the 457 is more flexible than a
403B with gaining access to the account value when they are still working. The guidelines state that employees can take
distributions for any unforeseen reason.
In conclusion, 403B and 457 are both great vehicles that
have pretax savings for employees.
However, when comparing the two vehicles the 457 is often viewed more
attractive for employees due to its flexibility to take contributions. With 403Bs limitations 457 should continue to
gain recognition and may even surpass 403Bs popularity.