Chocolate, Vanilla or Strawberry: How 401(k), 403(b) and 457(b) Plans Compare

By Ian Berger, JD
IRA Analyst

Like Neapolitan ice cream, most company retirement savings plans come in three flavors:

• 401(k) plans if you work for a for-profit company or you’re a business owner with no employees;
• 403(b) plans if you work for a tax-exempt employer, a public school or a church; and
• 457(b) plans if you work for a state or local government.

(Today, we’re not covering the Thrift Savings Plan for federal workers, 457(b) plans for tax-exempt employers, or SIMPLE and SEP IRAs.)

If you’re saving through your work plan, you probably don’t even know what your plan’s flavor is, but it may be an important factor if you’re considering a new job.

For the most part, the important features of each type of plan are exactly the same. For example:

• Each plan can allow elective deferrals (up to $23,500 for 2025), age-50-or-older catch-up contributions (up to $7,500 for 2025), and ages 60-63 “super catch-ups” ($11,250 for 2025).
   
• All three can allow Roth contributions and plan loans.
   
• Hardship withdrawals from all plans are usually available while you’re still working, although the 457(b) hardship standard is stricter than the 401(k)/403(b) standard. These plans can also permit other in-service withdrawals (e.g., for federally-declared disaster expenses, emergency expenses, and domestic abuse victims). Otherwise, you can’t withdraw your pre-tax or Roth contributions while still working until you turn age 59½.
• The “still-working exception” may be available to delay required minimum distributions (RMDs) until the year you retire or separate from service.
   
• You must be allowed to directly roll over eligible distributions from all three plans to IRAs or other plans. However, your employer must withhold 20% for federal income taxes if you don’t directly roll over your payout.
• If you must declare bankruptcy, your funds from all three plans are protected.

But there are also some important differences among the three types of plans:

• While 401(k) and 403(b) plans can offer after-tax (non-Roth) contributions, 457(b) plans can’t.
   
• If you have multiple 403(b) plans, those funds can be aggregated when calculating RMDs. But RMDs from multiple 401(k) or 457(b) plans can’t be aggregated.  
   
• A 10% penalty generally applies to 401(k) or 403(b) distributions made before age 59½. For some reason, the penalty doesn’t apply to 457(b) distributions – except when you take out funds you previously rolled into the plan from a non-457(b) plan or IRA.
   
• Only 403(b) plans allow for a special catch-up contribution if you have at least 15 years of service with your employer. Only 457(b) plans allow a special catch-up for the last three years before your retirement date.
   
• Protection from non-bankruptcy creditors differs among the plans. You enjoy complete protection under federal law (ERISA) if you’re in a 401(k) plan (other than a solo) or a 403(b) plan sponsored by a tax-exempt entity that provides for employer contributions. But if you’re in another kind of 403(b) or in a 457(b), you only have the creditor protection available under your state’s laws. In some states, that protection is not as strong as ERISA’s. 

If you have technical questions you would like to have answered, be sure to submit them to [email protected], to be answered on an upcoming Slott Report Mailbag, published every Thursday.