Q I have the option to save money in a 403(b) plan or a 457 plan at work. These seem like the same thing to me. What is the difference between them?
These plans are very similar; however, the biggest difference is that the 403(b) plan is subject to federal retirement income protections while assets in a 457 plan are not.
They will work essentially in the same fashion, but the 457 is not a "qualified plan," meaning it is not protected by the Employee Retirement Income Security Act (ERISA). This means if the employer went out of business or bankrupt, you would be only a general creditor and likely at the bottom of the list of creditors, with the potential of not receiving your money.
The 403(b), like the 401(k), is subject to ERISA protections that safeguard the plan's assets in the event the company enters bankruptcy.
In addition, some employers offer a matching contribution to the 403(b), so be sure you do not lose out on this free money. If you intend to contribute the maximum to the 403(b) and still would like to defer more dollars, then the 457 is a good option.
Kristin Hannemann, CFP (30)
Ka-Ching's financial experts at Edina-based Accredited Investors Inc. can be reached at email@example.com.