How Do 403(b) and 457 Plans Differ From a 401(k)?

403(b) plans, also known as tax sheltered annuities (TSAs), and 457 plans are quite similar to 401(k) plans. Both plans allow employees to defer income and benefit from tax deferred growth, and both plans enable employers to provide matching contributions. 403(b)s and 457 plans, like 401(k)s, have a 2009 contribution limit of $16,500 with an additional $5,500 “catch-up” contribution available to employees over 50 years of age. In most cases, withdrawals from both plans before the age of 59.5 will be subject to a 10% penalty. Finally, required minimum distributions (RMDs) are required from both accounts once the investor reaches age 70.5.

403(b) accounts, however, are only available to public educational systems and certain tax-exempt organizations. Meanwhile, 457 plans are only available to certain government entities. These plans are attractive to nonprofit and government employers because they are exempt from the Employer Retirement Income Security Act (ERISA), so employers can offer these plans to all employees, particular groups, or just individual employees whom the employer wants to benefit.

Public education systems and tax-exempt organizations also have the ability to offer Roth 403(b)s, which lack the benefits of an initial tax deduction, but offer tax-free growth. All 403(b) plans can invest in three types of assets:

1. Annuity contracts (both fixed and variable)

2. Mutual funds

3. Life insurance

An employee who participates in an employee-sponsored 403(b) plan cannot also participate in a 401(k) account. However, 457 plan participants do have the ability to make additional contributions to other employer-sponsored plans. Thus, certain government employees have the ability to contribute as much as $16,500 to their 457 plan, and an additional $16,500 to a 401(k).

About the author

Lon Jefferies, CFP®, MBA

Lon Jefferies is an investment advisor representative with Net Worth Advisory Group, a fee-only financial planning firm in Salt Lake City, Utah. He is a Certified Financial Planner (CFP®) and a member of the National Association of Personal Financial Advisors (NAPFA). He possesses an MBA and bachelor's degrees in Finance and Marketing from the University of Utah. Lon writes articles for local magazines such as Utah CEO, Business Connect and Utah Business Magazine, and he consistently contributes articles to online magazines such as and (by The Wall Street Journal). Additionally, Lon is an expert author at Lon has been quoted nationally in publications such as the NY Times and Investment News.

Lon can be contacted at (801) 566-0740 or Learn more about Net Worth Advisory Group at and visit Lon's blog at


Leave a comment
  • Hi Ellis,

    I’m not sure I understand your question. If you work for a government organization that offers a 457 retirement account, you should be able to contribute as little as you like.

    Alternatively, if you are an organization hoping to create a 457 plan for your employees, the rules for setting these plans up can be quite complicated. For example, certain plans must be limited to only a certain group of highly compensated employees. I’d recommend you speak with potential plan administrators to get further information if you are considering establishing a plan, as this can be a complicated subject that is beyond my breadth of expertise.

    If I have misunderstood your question, don’t hesitate to email me and I’ll help you any way I can.


  • Hi Lon, I have a question that does not seem to be covered by the documents that I have read and that is “what is the minimum amount required to open a 457 account?” and is this the same from state to state? I am located in Washington, DC. Thanks for your help Lon….Ellis.

Leave a Reply

Your email address will not be published.

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

Copyright 2014   About Us   Contact Us   Our Advisors       Login