How are 401(k), 403(b), and 457(b) tax-deferred retirement plans different? How are they alike?


Carol V. Calhoun of Calhoun Law Group says:

The attractiveness of a 457(b) plan as compared with a 403(b) plan or a 401(k) plan may vary greatly depending on the circumstances. For example, a state or local governmental entity other than a public school or university may need to have a 457(b) plan, because it cannot normally have either of the other types of plans. A private university that is tax-exempt under Internal Revenue Code ("I.R.C.") § 501(c)(3) but maintains a health maintenance organization that is tax-exempt under I.R.C. § 501(c)(4) and/or taxable research subsidiaries may prefer a 401(k) plan, so that it can cover all employees under the same plan. A private school that does not have affiliates, and wants to provide only for salary reduction contributions, may find that a 403(b) plan gives it the greatest ability to cover rank-and-file employees while minimizing administrative requirements. A public or private nonprofit school or university that maintains a qualified defined contribution plan may want to have a separate 403(b) plan as well, since it need not combine 403(b) contributions with contributions to the school or university's qualified plans in applying the I.R.C. § 415(c) limits.

She offers an amazing table comparing the 457(b), 403(b), 401(k) plans and the "deemed IRA".


They are very similar. Basically, a 403b has lower costs and reporting requirements and isn't administered by your employer. Your employer just collects your contributions and turns them over to the financial provider.

One thing that is different is that you often have a number of investment options, and they may or may not be good options. There have been occasions where teachers unions have engaged in shady behavior when endorsing very expensive investment options. Also, you may find investment options that are focused on insurance based products that are often poor investments.

As with anything else, before investing, understand the following:

  • What you are investing in?
  • What does the investment cost?
  • How is the salesman compensated?

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