Let us compare retirement plans:

We all dream of one day sitting out on the lake, sinking a few beers and waiting for that dream catch to bite, looking back on years of work and cherishing the fact that you don’t have to go back tomorrow.   It’s a beautiful dream, but we all know it’s not going to happen without proper planning.  So what are the different kinds of retirement plans available?

First up, we’ve got the 401(k) plan.  This is where an employer makes a salary deferral (or rather, reduction) on behalf of eligible employees (as long as the employee wants to of course!).  A possible problem for some with the 401(k) is that caps placed on the plan by the employer and/or regulations imposed by the IRS usually limit the percentage of an employee’s salary that can be deferred to the plan.

Next up, there’s the 403(b) plan.  To save a little time here, we should just point out that it’s very similar to the 401(k), but for employees of public schools and certain tax-exempt organizations.  As such, the same limitations apply to the 403(b) as the 401(k).

In addition to these, there’s what’s called a 457 plan.  This is much like the 401(k) and 403(b) in that deferral payments are made on behalf of employees.  The principal advantage of the 457 is that deferrals are not subject to a cap and assets are not taxed until they are distributed from the plan, although there is still a yearly limit imposed by the IRS.