Which retirement plan should I choose- 403(b), 457(b), or 401(a)?

The company that I work for offers 403(b), 457(b), and 401(a) retirement plans. Which one is the best plan, or is it wise to open all three accounts? I have a 401(k) plan with a different company that I work for and I contribute 6% of my salary to this plan. I also have a Roth IRA account and I make the maximum contributions every year. I'm 21 years old and I do not plan on staying with both companies for the long-term. I have no debt. I have an emergency fund, and about $104,000 in Vanguard's mutual fund managed by a financial advisor.

 Co-Published on Investopedia

Co-Published on Investopedia

While there are some key differences between the plans, it is the underlying investment options and fees which should really drive this decision. Each of the plans will have predominantly the same tax advantages; so instead look at the types of investments and the expense ratios of the funds you have access to in the 401(k), 403(b), 457(b) and 401(a) plan.

If your 401k plan has significantly cheaper fees and better investment options, then you should max out the 401k first ($18,500 in 2018) before looking to invest in the other plans. 403b and 457 plans, for example, often limit you to investing in high-cost annuities or high-fee mutual funds, which will have a hard time outperforming cheaper investment options net of fees.

If all the plans have similar investment options and fees, then I recommend funding the 457 plan. These plans allow you to take penalty-free withdrawals at any age. If you retire young, the 457 can be a beneficial source of income while you wait to have access to your 401k and IRA plans. You will still have the normal income taxes which are due on withdrawals at any age, the same as a 401k.

I also recommend talking with your financial advisor who is managing your Vanguard mutual fund. They should be knowledgeable about the account details and be able to give you more accurate advice based on your entire financial picture. If they aren't able or willing to offer advice on your entire financial picture, you may wish to consider if working with a different advisor would be better for your comprehensive financial plan.


Joshua Escalante Troesh is the President of Purposeful Strategic Partners and a tenured professor of Business at El Camino College. To explore working with him on your personal financial planning and investment advising needs, simply schedule a free Discover Meeting.


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