Difference Between 403(b) and 457

403(b) vs 457

403(b) and 457 are two different types of retirement savings plans which are qualified for tax advantages in the United States available to different employers who provide the plan to their employees.

403(b)
403(b) is a retirement saving plan which is tax advantaged and made available for cooperative hospitals, educational organizations especially public organizations, self-employed ministers, and some particular non-profit employers. Non-profit employers include specifically those organizations which are IRS Code 501(c) (3) organizations.

After the Economic Growth and Tax Relief Reconciliation Act 2001, the 403(b) savings plan can be explained as the savings retirement plan which is made before the payment of income tax. The employee’s salary grows tax-deferred for the time until the money is withdrawn. When withdrawn the money is taxed as income.

Some advantages of the 403(b) are that they are not subjected to discrimination testing. They are available universally; meaning any employee is permitted to make contributions towards 403(b) plan. It also has less costly and simpler reporting requirements. One of its most attractive features being the Roth 403(b) contribution option. It is a benefit which allows one to pay taxes on the money now instead of paying tax at the time of withdrawal.

There are some penalties that have to be paid in case of early withdrawal like the IRS charging ten per cent on the money as federal taxes along with the income tax applied on the saved money.

457 plan
The 457 plan is a retirement savings plan which is tax advantaged and made available for governmental and some specific, non-governmental employers who provide the plan to their employees.

The plan works almost in the same way as a 403(b) and 401(k), but the difference is that the ten per cent penalty in the case of a 401(k) and 403(b) is not charged at an early withdrawal of the money. The income tax has to be paid at the time of the withdrawal similarly as in a 403(b). In a 457 savings retirement plan, independent contractors can participate; however, in a 403(b), the independent contractors cannot participate.

The 457 savings retirement plan also has Roth options,which means that the taxes have already been paid on the money that one is contributing. With this option, one can designate either all the money or a portion of it to Roth.

Summary:

1.403(b) is a retirement savings plan which is tax advantaged and made available for cooperative hospital service organizations, public education organizations, self-employed ministers, and some particular, non-profit employers; the 457 plan is a retirement savings plan which is tax advantaged and made available for governmental and some specific, non-governmental employers who provide the plan to their employees.
2.In the 403(b) plan, in case of early withdrawal, the IRS charges a ten per cent penalty; in a 457 plan there is no penalty on early withdrawal.
3.In a 457 savings retirement plan, independent contractors can participate; in a 403(b), the independent contractors cannot participate.
4.In a 403(b) plan the contracts are held by the employee (you); in a 457 plan, the contract is held by the employer.

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