What Are The Differences Between 457 vs. 401k

Shawn Plummer

CEO, The Annuity Expert

When it comes to planning for retirement, there are a myriad of options available. Two popular choices are the 457 plan and the 401k plan. These retirement plans offer unique advantages and disadvantages, and understanding their differences is crucial for making the best decision for your financial future. This comprehensive guide will summarize the key aspects of 457 and 401k plans, including their benefits, drawbacks, and eligibility requirements. Our goal is to provide you with the knowledge and confidence to make an informed decision about which plan is best suited for your individual needs.

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Understanding 457 and 401k Plans

What is a 457 Plan?

A 457 plan is a deferred compensation retirement plan primarily designed for state and local government employees and some nonprofit organizations. With a 457 plan, you can contribute a portion of your salary to a designated investment account, which grows tax-deferred until you withdraw the funds in retirement.

What is a 401k Plan?

A 401k plan is a widely-known retirement saving plan many private sector employers offer. Like the 457 plan, a 401k allows you to contribute a portion of your pre-tax income to a retirement account, where the funds can grow tax-deferred until you withdraw them in retirement.

Comparing Contributions and Withdrawal Rules

Contribution Limits

Both 457 and 401k plans have annual contribution limits set by the IRS. As of 2023, the annual limit for both plans is $22,500, with an additional $7,500 catch-up contribution allowed for participants aged 50 or older. However, 457 plans offer a unique “double catch-up” provision three years before the participant’s average retirement age, allowing them to contribute twice the standard annual limit.

Withdrawal Rules

The withdrawal rules for 457 and 401k plans differ in critical ways. First, while both plans require you to wait until age 59 ½ to make penalty-free withdrawals, 457 plans do not impose a 10% early withdrawal penalty, unlike 401k plans. You won’t face additional penalties if you leave your job and must access your 457 funds. However, the funds will still be subject to income taxes upon withdrawal.

457 Vs. 401K

Employer Matching and Vesting

Employer Matching

One of the key benefits of a 401k plan is the potential for employer-matching contributions. Many employers will match some of their employees’ contributions, effectively providing “free money” to boost retirement savings. On the other hand, employer matching is less standard in 457 plans, particularly for government employees.


Vesting refers to gaining full ownership of your employer’s matching contributions. A 401k plan may require you to work for your employer for several years before being fully vested. With a 457 plan, vesting schedules are typically more lenient, and you may be fully vested in your employer’s contributions as soon as they are made.

401K Vs 457

Investment Options and Fees

Investment Options

457 and 401k plans offer various investment options, including mutual funds, target-date funds, and individual stocks and bonds. While options will vary depending on the plan provider, 401k plans generally offer a more comprehensive selection of investment choices.


Plan fees can have a significant impact on your overall retirement savings. While both 457 and 401k plans may charge administrative and investment fees, the fees associated with 457 plans are typically lower than those found in 401k plans. Therefore, it’s essential to carefully review and compare the fees of each plan to ensure you’re not eroding your retirement savings with unnecessary costs.

457B Vs 401K

Eligibility and Plan Availability


Regarding eligibility, 457 plans are generally limited to state and local government employees and some nonprofit workers. Conversely, 401k plans are widely available to employees in the private sector. As a result, some individuals who work for both government and private employers may have access to both types of plans, allowing them to benefit from the unique advantages of each.

Plan Availability

The availability of 457 and 401k plans depends on the specific employer. For example, while many private sector employers offer 401k plans, they are less likely to provide 457 plans. Similarly, government employers are more likely to offer 457 plans but may not offer 401k options. Therefore, it’s essential to carefully review your employer’s retirement plan offerings to determine which plan, if any, is available to you.

457 Plan Vs 401K

Next Steps

In conclusion, 457 and 401k plans offer valuable opportunities for individuals to save for retirement. However, while they share many similarities, there are also crucial differences in contribution limits, withdrawal rules, employer matching, vesting schedules, investment options, fees, eligibility, and plan availability.

When choosing between a 457 and a 401k plan, it’s essential to weigh these factors and consider how they align with your specific financial goals and circumstances. Doing so lets you confidently select the retirement plan that best suits your needs and sets you up for a secure financial future.

Difference Between 401K And 457

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Frequently Asked Questions

How much tax will I pay on my 457 withdrawal?

Assets in a 457 plan not withdrawn before the payout date are exempt from the 10% early withdrawal penalty tax. But, if you transfer assets from a different retirement plan (401, 403b, or Traditional IRA) to your 457 plan, they may be subject to the 10% early withdrawal penalty tax.

Can I convert 457 to 401k?

You can transfer your assets from a 457(b) plan to other retirement accounts such as a traditional IRA, Roth IRA, another 457(b) plan, a 403b, a 401(a), or a 401k plan.

What is the point of a 457?

A 457(b) and 401k are similar in that they both allow workers to save money in a retirement account that offers tax benefits, enabling them to grow their savings tax-free.

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Shawn Plummer

CEO, The Annuity Expert

Shawn Plummer is a licensed insurance agent and annuity broker with over a decade of in-depth experience. Since beginning his journey in 2009, he has not only been pivotal in selling and educating about annuities and insurance products but has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates. 

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