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I'm a graduate student at a public university in the USA (Purdue University). They give me the choice of investing in either a 403(b) or a 457(b) plan. The university does not provide any matching funds. What's the difference between these, and on what basis should I choose one versus the other? What about when compared against a Roth IRA? My annual gross is around $14k.

Currently, I feel that I don't have enough income to choose both 457(b) and 403(b), but would putting money in both be a viable choice if I had a larger income?

  • What are the fees inside the account? With no match, the fee is the critical thing to help you decide. You may be best off with a Roth or traditional IRA. – JTP - Apologise to Monica Sep 1 '13 at 1:21
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These are plans similar to 401k plans. 457(b) plans are available for certain government and non-profit organizations, and 403(b) plans are available for certain educational, hospital, religious and non-profit organizations. Your school apparently fits into both classes, so it has both.

These plans don't have to allow ROTH contributions, but they may, so you have to check if there's an option.

The main (but not only) difference from IRA is the limit: for 401(k), 403(b) and 457(b) plans the contribution limit is $17500, while for IRA its $5500 (for 2013).

Additional benefit of 457(b) plan is that there's no 10% penalty on early withdrawal, just taxes (at ordinal rates).

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    +1 457(b) plans also suffer from the problems that plague 401(k) and 403(b) plans, including the limited choices for investment that are rarely the ones that the participants would have chosen for themselves. – Dilip Sarwate Aug 31 '13 at 11:50
  • If I wait until I'm old (65 years???), do I have to pay taxes on the gains in a 457(b) plan? – Pigrew Sep 1 '13 at 12:47
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    @Pigrew yes, you do. Its a deferred tax plan. – littleadv Sep 2 '13 at 17:51

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