Legal Blog

Weekly Scenario: What is the difference between 401(k), 403(b) and 457 retirement plans?

Question:  I learned recently about 401(k) retirement plans, but I am public school employee and have a 403(b) plan through my employer.  Are there differences I should be aware of?  I also heard of something called a 457 plan.  Can you tell me what that is? Answer:  Generally 403(b) plans are similar to 401(k) plans as both are funded by employee salary deferrals ($17,500 cap in 2014; $23,000 for participants 50 or older).  The earnings inside the plan are tax deferred until the funds are withdrawn.  Tax free rollovers are permitted and loans should be available. 

Historically, most 403(b) investments were tax-sheltered annuities or TSA’s offered by insurance providers.  As a result the employers had little control over the administration of the plan.  Because employers had little oversight over the plans, there often was a disconnect between the administration of the plan and the employers’ responsibilities to the participant. More recently federal regulations have been stepped up and now these 403(b)s have become more similar to 401(k) plans.  So while TSAs are still very common in these plans, now mutual funds are more commonly seen in these plans.  Many employers even offer “Roth” 403(b)s.

Opportunity/457 Plans:

The 2001 Tax Act created an opportunity for some educators, allowing school districts to provide a “457” plan in addition to the 403(b) plan.  This year, an educator can contribute up to $35,000 into retirement plans — $17,500 to a 403(b) and another $17,500 to a governmental 457(b) plan.  Educators 50 or older are subject to higher limits ($5,500 catch up for each plan).  This is an opportunity for educators with spouses who have sufficient incomes to make double contributions towards retirement.

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As always, if you have questions or would like to know more about estate plans and estate administration  please contact Steven E. Shane at:

Steve Shane Head Shot for | 301.575.0313.

Steve provides strategic counseling to clients in need of estate administration, charitable giving and business continuity planning while minimizing estate, gift, and generation-skipping transfer tax exposure. He offers legal guidance to clients on asset protection and the proper disposition of assets in accordance with the client’s objectives, while employing tax planning techniques such as the use of irrevocable trusts, life insurance planning, lifetime gifts and charitable trust. He is also experienced with drafting documents for business planning, the incorporation and application for exemption for Private Foundations and the administration of decedents’ estates.

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