401(a), 403(b) and 457(b) Plans

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401(a)s are offered by governmental, for-profit and not-for-profit employers. These plans are rarely the core offering. The are different from the more familiar 401(k) plans. They are a supplemental plan to help you save.

· The employer can decide who is eligible to use the plan.

· These plans often have mandatory employee contributions.

· The contribution limit in 2024 is $23,000 or $30,500, if age 50 or older

· Often, these plans only allow employer contributions.

· As a supplemental plan, it can allow for more tax-advantaged investing, in addition to other plans. 

· Contributions are sometimes mandatory. 

· These plans are not frequently offered.

· Contributions are sometimes mandatory. Many employees wouldn’t invest at all if it wasn’t mandatory.

403(b) plans are the most popular of higher education, non-profit and foundational retirement plans. These plans are for employees of public schools and tax-exempt organizations. If you work in higher education, chances are, you have one. Chances are also pretty good that your provider is TIAA or Fidelity, as they are the largest Recordkeepers in this space.

Institutions normally offer a “match” or a flat rate that they will contribute to the plan on your behalf. You’re ordinarily required to put in a percentage of your own pay, through salary deferral, to receive employer contributions. 

· The contribution limit for 2024 is $22,500 if under 50, $30,500 if over 50. 

· Your employee contributions lower your taxable income dollar for dollar, when you choose pre-tax contributions. After-tax Roth contributions are also an option in some plans.

· The growth of your investments in the plan is tax-deferred. The tax advantages can help you build wealth quickly.

· Taxes aren’t paid until you take a distribution. If you use a qualified distribution, you will owe ordinary income tax. Qualified distributions occur after age 59 ½ but there are a few exceptions.

· Most plans allow for loans. I don’t encourage using them, but if you exhaust all other options, it is available. 

· Most universities/colleges offer generous employer contributions.

· Contributions lower your taxable income for that year. (unless you opt for Roth contributions)

· Employer matching doesn’t count toward the $22,500 employee limit.

· Many plans have limited investment options.

· Use TIAA? Did you know you may not be able to get access to some of your money right away when you retire? If you hold TIAA Traditional, you may want to ask them if there are any withdrawal restrictions.

· The recommendations, service, and guidance from 403(b) vendors is inadequate. Many claim to offer financial planning. In my experience, this tends to be little more than plugging some numbers into a retirement calculator, it isn't comprehensive financial planning.

457(b) plans are available to employees of state/local governmental agencies and certain tax-exempt organizations. Some employers offer only a 457(b) plan. For higher education, you typically only see 457(b) plans made available alongside 403(b) plans. 

· Normally offered only to public school employees.

· The contribution limit for 2024 is $22,500 if under 50, $30,500 if over 50. 

· Like 403(b)s, contributions can (when using pre-tax contributions) lower your taxable income and the growth of the plan is tax-advantaged as well.

·  HUGE: If a 403(b) and 457(b) is offered, you can max out BOTH.

· ALSO HUGE: If you separate service, there is NO premature withdrawal penalty. If you want to retire in your early to mid 50’s, this can be a game-changer.

· While premature withdrawal penalties don’t apply after separating service, required minimum distributions do apply.

· Not as common as 403(b) plans.