401(k), 403(b), and 457 Plan

Planning for retirement means choosing the right account—but understanding the differences between 401(k), 403(b), and 457 plans can be complex. Whether you work in the private sector, a nonprofit, or government, knowing the distinctions between these tax-advantaged accounts is key to making confident decisions.

This guide offers a detailed comparison of 401(k), 403(b), and 457 plans—including investment options, employer matching, annuities, taxes, and contribution limits. If you’re unsure which plan best supports your retirement goals, this breakdown can help.

Tax-advantaged accounts allow your savings to grow with either tax-deductible contributions, tax-deferred growth, or tax-free withdrawals—depending on the account and your choices.

2025 Contribution Limits

Plan Type	Employee Contribution Limit	Catch-Up (Age 50+)
401(k)	$23,000	$7,500
403(b)	$23,000	$7,500 (+15-year rule for some)
457(b)	$23,000	$7,500 (special double catch-up may apply)

Quick Comparison: 401(k), 403(b), and 457(b)

Plan	Best For	Key Advantage	Possible Limitation
401(k)	Private-sector workers	Employer match, broad investments	10% penalty before 59½
403(b)	Nonprofit/education	Often includes annuities	Fewer matching options
457(b)	Government	No penalty after job separation	Rare employer match

What Is a 403(b) vs. 401(k)?

The 403(b) and 401(k) plans function similarly, but they serve different types of employees and have distinct features.

What Is a 401(k) Plan?

A 401(k) plan is a retirement savings account provided by private-sector employers. Contributions are made with pre-tax dollars, reducing taxable income and allowing tax-deferred investment growth.

• Employers often provide matching contributions to enhance savings.
• Investment choices typically include mutual funds, ETFs, and annuities.
• Withdrawals before age 59½ may trigger a 10% penalty unless exceptions apply.

What Is a 403(b) Plan?

A 403(b) plan is available to employees of public schools, nonprofit organizations, and religious institutions.

• Like a 401(k), contributions are pre-tax and grow tax-deferred.
• Investment options are typically limited to mutual funds and annuities.
• Employer matching is less common than in 401(k) plans.

401(k) vs. 403(b) Comparison Chart

Feature	401(k)	403(b)
Eligibility	Private-sector employees	Nonprofits, public schools
Investment Options	Mutual funds, ETFs, annuities	Mostly mutual funds & annuities
Employer Matching	Common	Less common
Early Withdrawal Penalty	10% before 59½	10% before 59½

401(k) vs. 403(b) vs. 457: What’s the Difference?

A 457(b) plan is another tax-advantaged retirement account, primarily offered to state and local government employees.

Key Features of a 457(b) Plan:

• Contributions are pre-tax and grow tax-deferred.
• No early withdrawal penalty after job separation, regardless of age.
• Contribution limits are the same as 401(k) and 403(b) plans in 2025.

Roth Options in 401(k), 403(b), and 457(b) Plans

Most modern 401(k), 403(b), and 457(b) plans offer a Roth contribution option. This allows you to contribute after-tax dollars—so you pay taxes now, but all qualified withdrawals in retirement are tax-free. Roth contributions can be especially valuable if you expect your tax rate to increase in the future or want tax diversification in retirement.

401(k) vs. 403(b) vs. 457 Comparison Chart

Feature	401(k)	403(b)	457(b)
Eligibility	Private-sector	Nonprofits, schools	Government employees
Employer Matching	Common	Less Common	Rare
Early Withdrawal Penalty	10% before 59½	10% before 59½	None after separation

401(k) vs. 403(b) vs. 457: Which Plan Is Best?

• If you work in the private sector, a 401(k) is likely your best option, especially if employer matching is available.
• If you work for a nonprofit or school, a 403(b) is common, though investment flexibility may be limited.
• If you’re a government employee, a 457(b) allows penalty-free early withdrawals and can offer greater flexibility.

Annuities in Retirement Plans

Many 403(b) and some 457(b) plans include annuities as investment choices. Fixed annuities provide stability and principal protection, usually with low or no fees—making them a strong fit for conservative savers. Fixed Index Annuities (FIAs), where available, combine principal protection with the opportunity for interest growth linked to a market index, but without direct stock market exposure or the risk of market loss. Variable annuities, in contrast, typically have higher fees and can expose your account to investment risk and losses—features that may not suit everyone looking for stable retirement income.

If your employer offers more than one plan (e.g., a 401(k) and a 457(b)), you may be able to contribute to both, increasing your overall retirement savings.

Pro Tip: If you’re eligible for both a 403(b) and a 457(b), you can often double your annual savings—making these plans especially powerful for high savers looking to maximize retirement contributions in 2025 and beyond.

Frequently Asked Questions (FAQ)

1. Can I contribute to both a 401(k) and a 403(b)?

Yes. If your employer offers both, you can contribute to each plan. The combined contribution limit in 2025 is $23,000, with an additional $7,500 catch-up contribution for those aged 50 and over.

2. What happens if I leave my job?

• Roll over your account into an IRA or new employer plan.
• Leave funds in the current plan, if allowed.
• Withdraw funds (early withdrawals may be penalized, except 457(b) plans post-separation).

3. Do 403(b) and 401(k) plans have different tax benefits?

Both offer pre-tax contributions and tax-deferred growth. Some 403(b) plans also offer Roth options with tax-free withdrawals in retirement.

4. Is a 457(b) plan better than a 401(k) or 403(b)?

A 457(b) plan offers more flexibility for early withdrawals without penalty but rarely includes employer matching. 401(k)s often include matching and broader investment options.

5. Are annuities a good investment in a 403(b) or 401(k)?

Annuities can offer guaranteed income in retirement:

• Fixed annuities provide stable returns and typically have minimal fees.
• Variable annuities offer growth potential through market investments but carry higher fees.

403(b) plans often include annuities, especially fixed ones. 401(k) plans typically offer a wider selection of funds.

6. What is the difference between a 401(k) and a 401(a)?

A 401(a) plan is usually offered by government and nonprofit employers. It may include mandatory employee contributions and has more rigid rules than 401(k) plans.

Conclusion: 403(b) vs. 401(k) vs. 457 – Which Retirement Plan Wins?

• 401(k): Ideal for private-sector employees with employer matching and diverse investments.
• 403(b): Common in nonprofits and education, often includes annuity options.
• 457(b): Best for government workers needing early withdrawal flexibility.

By understanding the differences between these plans, you can make informed choices and build a more secure retirement strategy.