What Are the 401(k)/457 Plans?
One of the decisions you face when you sign up for Savings Plus is which plan to enroll in: 401(k) or 457. (Our plan comparison chart summarizes the two plans side by side.) You can enroll in both, but that also means you'll pay administrative fees for both.
401(k) Plans and 457 Plans have some things in common. For instance, both plans allow for before-tax contributions, Roth contributions, and rollover contributions from prior employer plans. Both plans limit withdrawals to qualifying circumstances. After all, these are retirement accounts, not ordinary savings accounts. Both plans allow for age-based deferrals (age 50 or older).
The key differences between the 401(k) Plan and 457 Plan are as follows:
- If you plan to retire before age 55 and begin withdrawals immediately, you should know that early withdrawal penalties apply to the 401(k), but not the 457 Plan.
- Another difference is that you can withdraw funds from a 401(k) for a home purchase or college tuition, but not from a 457 account.
- The 457 plan contains a “catch up” provision that allows you to contribute a higher amount to make up for the years you were eligible to contribute to a retirement plan but didn't. The 401(k) doesn't have this provision.
Once you contribute money to one of these plans within Savings Plus, it must remain in that plan until you're eligible for distribution.