With all of the different numbers floating around, you may become confused as to what is what. 401Ks, 403Bs, 457s, it’s all a bunch of numbers that can sometimes make your head spin. The differences mainly lie in what kind of employer you have: For Profit, Non-Profit, or Tax-Exempt. The plans are relatively similar in their basic principles about how money is put in and taken out.

401K

These plans take their name from the section of the IRS Code that created them. It is a plan qualified under Section 401(a) which defines qualified plan trusts and their rules. The 401(k) plan is a qualified plan established by employers into which employees may make salary deferral contributions either post or pre-tax. Employers may elect to make matching contributions to the plan as well. The funds in these plans are allowed to grow without tax penalty until they are withdrawn. The ability to contribute pre-tax reduces the amount of taxes taken out of each paycheck, which is a drawing point for many. 401(k)s can also move with you from company to company, allowing rollover.

403B

Similar to the 401K, the 403B plan is a retirement plan for educational and non-profit organizations. The funds in these plans grow without tax penalty until withdrawn. The ability to contribute pre-tax reduces the amount of taxes taken out of each paycheck, as is found in 401Ks. Employees set aside money for retirement through pre-tax salary reduction. As with 401Ks, employees can decide where their money is distributed and how. Employees may also elect to rollover their plan into a new one should they leave their current employment. This type of plan is also known as a tax-sheltered annuity.

457

This may be a retirement plan that you’re not well-aware of. A 457 retirement plan is established by state and local governments and tax-exempt employers. It is highlighted in Code Section 457, from which it gets its name. Once again, employees can make salary deferral contributions to their plan. Like the previous two plans, earnings are not taxed until distribution is made. These types of plans are also known as nonqualified, deferred compensation plans.