Setrics Tracker

Comparison of 401(k) and 457 Plans

Who can sponsor a 457 savings plan?   What are the different types of 457 plans and what advantages do each provide as compared to a traditional 401(k) type savings plan? Tax exempt employers, governmental entities, and certain church organizations can operate a 457 plan, however, the type of employer entity will determine which of the three kinds of 457 plans can be setup and operated by the employer.

It can be difficult for an employer to know the difference between an Eligible 457(b) Plan, an Ineligible 457(f) Plan and a 457(b) Top Hat Plan. Tax exempt employers can set up one or both a 457(b) Top Hat Plan and an Ineligible 457(f) Plan. Governmental employers can set up one or both an Eligible 457(b) plan and Ineligible 457(f) Plan. Non-Electing Churches under section 410(d) can only setup an Ineligible 457(f) Plan. 457(b) Top Hat and Eligible 457(b) Plans for governmental entities have employee and employer contribution limits similar to the 401(k) plan deferral limit. An Ineligible 457(b) plan is a Non-Qualified Deferred Compensation plan with no deferral limit and is subject to substantial risk of forfeiture and full taxation at that time.  Here is a detailed table showing the difference between these benefit types:

457 Comparison Chart-1