Two types of Internal Revenue Service (IRS)-sanctioned, tax-advantaged employee retirement savings plans are the 401(k) plan and the 457 plan.

These retirement savings accounts were each designed to serve as one leg of the famous three-legged stool of retirement: workplace pension, 澳洲幸运5官方开奖结果体彩网:Social Security, and personal 澳洲幸运5官方开奖结果体彩网:retirement savings. As employers have transitioned away from workplace pensions, however, personal retirement savings have increasingly come to serve as most people’s primary retirement plan, along with Social Security. (This can be a 401(k) or a 457, but it doesn’t have to be.)

They share similar features. Like 401(k)s, 457 plans are funded via employee payroll deductions. A participant sets aside a percentage of their pretax salary to put into their retirement account. This money 澳洲幸运5官方开奖结果体彩网:compounds without being t💛axed until it is withdrawn𝓰, typically in retirement.

That’s the traditional way—but now, many plans also offer a Roth option. With a 澳洲幸运5官方开奖结果体彩网:Roth account, the contributions are taxed upfront, and—as long as the account has been open for at least five years and the participant is at least age 59½—any subsequent growth and withd�🐲�rawals are not taxed.

Both plans also allow for early withdrawals in limited circumstances. (However, the qualifying circumstances for early withdrawal eligibility may be different.) And contributions to both plans qualify employees for a 澳洲幸运5官方开奖结果体彩网:saver’s tax credit. It is also possible to take loans from both 401(k) and 457 plans.

Though 401(k) plans and 457 plans operate similarly, there are d🧔if💯ferences, including who is allowed to participate in each one.

401(k) Plans

401(k) plans are offered by private, for-profit employers and some nonprofit employers. They are the most common type of 澳洲幸运5官方开奖结果体彩网:defined contribution retirement plans. Notably, 401(k) plans are considered 澳洲幸运5官方开奖结果体彩网:qualified retirement plans and are therefore subject to the Employee Retirement Inco🎐me Security Act (ERISA) of 1974.

Employers sponsoring 401(k) plans may make matching or 澳洲幸运5官方开奖结果体彩网:non-elective contributions to the plan on behalf of eligible employees. Earnings in a 401(k) plan accrue on a 澳洲幸运5官方开奖结果体彩网:tax-deferred basis. At the same time, 401(k) plans offer a menu of investment options that are prescreened by the sponsor, and participants choose how to invest their money.

The plans have an annual maximum contribution limit of $23,500 for 2025 ($23,000 for 2024). For employees age 50 or older, the plans contain a 澳洲幸运5官方开奖结果体彩网:catch-up provision that allows you to contribute an additional $7,500 for 2024 and 2025.

Withdrawals from a 401(k) taken before age 59½ result in a 10% early withdrawal tax penalty. However, plan participants can make early withdrawals without a penalty from a 401(k) 澳洲幸运5官方开奖结果体彩网:under financial hardship, which is defined by the plan.

457 Plans

457(b) plans are IRS-sanctioned, tax-advantaged employee retirement plans offered by state and local public employers and some nonprofit employers. They are some of the least common defined contribution retirement plans.

The annual maximum contribution limit for 457 plans is $23,500 for 2025 ($23,000 for 2024). For employees age 50 or older, the plans contain a catch-up provision that allows up to $7,500 in additional contributions for 2024 and 2025.

However, 457 plans are a type of non-qualified retirement plan: They are not governed by ERISA. As such, the 澳洲幸运5官方开奖结果体彩网:Internal Revenue Service (IRS) does not assess an early withdrawal penalty for 457 plan participants who take money out before age 59½, though the amount taken is still subject to normal 澳洲幸运5官方开奖结果体彩网:income taxes.

Notably, 457 plans feature a double-limit catch-up provision that 401(k) plans do not have. This provision is designed to allow participants who are nearing retirement to compensate for years in which they did not contribute to the plan but were eligible to do so. This provision allows an employee to contribute up to $47,000 to a plan for 2025. For 2024, it was up to $46,000.

With 457 accounts, hardship distributions are allowed after an “unforeseeable emergency,” which must be specifically laid out in the plan’s language.

Both public government 457 plans and nonprofit 457 plans allow 澳洲幸运5官方开奖结果体彩网:independent contractors to participate.

Special Considerations

It is possible to contribute to both a 401(k) plan and a 457 plan at the same time. Many large government employers offer both plans. In such cases, the joint participant can contribute the maximum amounts to both.

The Bottom Line

The 401(k) and the 457 are retirement plans offered by employers to their employees to save fo👍r retirement. They are similar in almost every way with a few distinctions, the primary one being that 401(k)s are offered byꦍ private employers while 457 plans are offered by local governments and some nonprofits.

If you have a question about what’s on offe𒈔r, check with your employer or plan administrator.