457 vs 401(k): What’s the real difference?

While any employer can offer a 401(k), a 457 plan is commonly associated  with state and local governments and certain eligible nonprofits.

401(k) Plans

A 401(k) is a tax-advantaged, defined contribution plan. Specifically, it’s a type of retirement plan that’s recognized or qualified under the Employee Retirement Income Security Act.

Medium Brush Stroke

A 401(k) is funded with pre-tax dollars, meaning that contributions reduce your taxable income in the year you make them.

Understanding 401(k) Contributions

457 Plans

A 457 plan is a deferred compensation plan that can be offered to state  and local government employees, as well as employees of certain  tax-exempt organizations.

Medium Brush Stroke

Vesting for a 457 plan is similar to vesting for a 401(k), but you generally can’t be vested for two full years.

Vesting in a 457 Retirement Plan


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