403(b) vs. 457(b)

What is the difference between a governmental 457(b) plan and a 403(b) plan?

 

Features Governmental 457(b) Plan 403(b) Plan
Contribution Limits – Year 2018
  • $18,500 basic maximum contribution limit
  • 457(b) limits not coordinated with 403(b) plan
  • $18,500 basic maximum contribution limit
  • 403(b) limits not coordinated with 457(b) plan
Early Withdrawal IRS Penalty Tax None – (normal income tax only) 10% early withdrawal penalty tax may apply under age    59 ½ plus normal income tax
Eligibility Rules Non-discrimination rules do not apply Universal Availability Rule non-discrimination applies
Small Balance Distribution
  • Account balance $5,000 or less
  • No contributions in the past 24 months
Not applicable
Age 50 Catch-Up Option Total of $6,000 annual limit – not permitted if special catch-up option used Total of $6,000 annual limit
Special Catch-Up Option As permitted in the plan document. As permitted in the plan document.
Purchase Service Credit State Retirement System Permitted Permitted
Distribution Restrictions
  • Severance from employment
  • Age 70 ½ while employed
  • Disability or death
  • Small account balance
  • Unforeseeable emergency
  • Severance from employment
  • Age 59 ½ while employed
  • Disability or death
  • Financial hardship

 

Portability of Plan Funds after Qualifying Event Funds can be rolled over to:

  • Governmental 457(b) plan of another employer
  • Another 457(b) provider approved in the plan
  • IRA (Traditional, SEP, SAR – SEP, Roth)
  • Pension, profit sharing, 401(k)
  • If permitted by both plans

 

Funds can be rolled over to:

  • Another 403(b) provider in the plan
  •  Another 403(b) plan
  • Governmental 457(b) plan of another employer
  • IRA (Traditional, SEP, SAR-SEP, Roth)
  • Pension, profit sharing, 401(k)
  • If permitted by both plans

 

Hardship / Unforeseeable Emergency Distributions Contributions may be distributed to the extent required for an unforeseeable emergency defined by the IRS as a severe financial hardship to you resulting from events such as a sudden and unexpected illness; an accident you or a dependent experience; loss of your property because of casualty; or other similar extraordinary and unforeseen circumstances arising as a result of events beyond your control. Withdrawals are only permitted for limited financial circumstances that must be substantiated. Contributions may be distributed to the extent required for a financial hardship defined by the IRS as expenses deemed to be immediate and heavy, including: (1) certain medical expenses; (2) purchase of a principal residence; (3) tuition and related educational fees and expenses; (4) prevent eviction from, or foreclosure on, a principal residence; (5) burial or funeral expenses; and (6) certain expenses for the repair of damage to the employee’s principal residence. Withdrawals are only permitted for limited financial circumstances that must be substantiated.
Loans Applies to all accounts and all plans (403(b) & 457(b)) of the employer; limited to the lesser of:

  • $50,000 or
  • One half of the vested account balance

 

Applies to all accounts and all plans (403(b) & 457(b)) of the employer; limited to the lesser of:

  • $50,000 or
  • One half of the vested account balance

 

Required Minimum Distribution RMD rules apply after the later of age 70 ½ or separation from service, or after death RMD rules apply after the later of age 70 ½ or separation from service, or after death

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