| Aspect | 401k | 457 |
|---|---|---|
| Definition | Employer-sponsored retirement plan for private-sector and some nonprofit workers. | Tax-advantaged deferred compensation plan offered to state, local, and certain nonprofit employees. |
| Primary Purpose | Encourages long-term savings through pre-tax or Roth contributions with employer match potential. | Provides supplemental retirement income for government and tax-exempt organization employees. |
| Core Mechanism | Contributions reduce taxable income; earnings grow tax-deferred until withdrawal. | Deferred salary reduces current taxable income; investments grow tax-free until distribution. |
| Sponsor Type | Offered by for-profit companies, non-profits, and some religious organizations. | Sponsored by state governments, local municipalities, school districts, and 501(c)(3) entities. |
| Eligibility | Available to employees of participating private-sector employers; self-employed can use solo 401k. | Restricted to employees of government bodies or tax-exempt organizations; not for private-sector workers. |
| Contribution Limit | 2024 limit is $23,000; catch-up for age 50+ adds $7,500. | 2024 limit is $23,000; special catch-up for near-retirement adds up to $7,500 extra. |
| Employer Match | Common; employers often match 50% to 100% of contributions up to 6% of salary. | Rare; most government 457 plans offer no employer match, though some do. |
| Early Withdrawal | 10% penalty applies before age 59½, with limited exceptions like hardship or disability. | No 10% penalty for any withdrawal before 59½, but distributions must follow plan rules. |
| Withdrawal Timing | Distributions allowed after age 59½, separation, disability, or qualifying hardship. | Withdrawals permitted upon separation, age 70½, or unforeseeable emergency, without penalty. |
| Loan Provision | Loans up to $50,000 or 50% of vested balance, whichever is less, are typically allowed. | Loans generally not permitted; in-service withdrawals only for severe financial hardship. |
| Roth Option | Roth 401k available; after-tax contributions grow tax-free, qualified withdrawals exempt from tax. | Roth 457 offered in many plans; contributions taxed now, but qualified distributions remain tax-free. |
| Rollover Rules | Can roll over to IRA or new employer plan after leaving job without tax consequences. | Can roll over to IRA, 401k, or another 457 plan; governmental 457s offer more flexibility. |
| Penalty Exceptions | Exceptions include first-time homebuyer up to $10,000, medical expenses, and higher education costs. | No penalty ever applies; even non-emergency withdrawals face only ordinary income tax. |
| Vesting Schedule | Employer match vests over 3 to 6 years; employee contributions always fully vested. | Employee contributions always 100% vested; employer contributions may have separate vesting rules. |
| Investment Options | Typically 10 to 30 mutual funds, index funds, target-date funds, and sometimes brokerage windows. | Often fewer options; many governmental plans offer a core lineup of index and target-date funds. |
| Administrative Fees | Average plan fees range from 0.5% to 1.5% of assets annually, varying by provider. | Fees often lower, averaging 0.3% to 0.8%, due to government plan pooling and oversight. |
| ERISA Protection | Covered by ERISA, providing fiduciary standards and creditor protection for participants. | Governmental 457 plans are exempt from ERISA; non-governmental plans have weaker creditor shields. |
| Creditor Protection | Assets protected from creditors in bankruptcy up to $1,512,350 (2024) under federal law. | Governmental 457 assets are protected from creditors; non-governmental 457s lack this federal shield. |
| Required Minimum Distributions | RMDs must begin by April 1 after turning 73, based on IRS life expectancy tables. | RMDs apply after age 73 for governmental 457s; non-governmental plans have different rules. |
| In-Service Distributions | Generally prohibited before age 59½ unless plan allows hardship withdrawals or loans. | Permitted for unforeseeable emergency or after reaching age 70½, even while still employed. |
| Plan Types | Traditional, Roth, safe harbor, SIMPLE 401k, and solo 401k for self-employed individuals. | Governmental and non-governmental (top-hat) 457 plans; no Roth or safe harbor variants. |
| Tax Filing Complexity | Simple; contributions reported on W-2, distributions on Form 1099-R. | Same reporting structure; non-governmental 457 distributions may require special tax treatment. |
| Contribution Coordination | Shares the $23,000 limit with 403b plans; separate from 457 limits. | Has its own $23,000 limit; can be maxed alongside a 401k or 403b from the same employer. |
| Age 50 Catch-Up | Additional $7,500 allowed for participants aged 50 and older each year. | Additional $7,500 for age 50+; plus a special 3-year catch-up for those near retirement. |
| Special Catch-Up | No special catch-up beyond the standard age 50 provision. | Last 3 years before retirement, you can contribute up to double the normal limit. |
| Distribution Flexibility | Limited to specific events like separation, age 59½, disability, or hardship. | More flexible; any separation from service allows penalty-free access regardless of age. |
| Typical Employers | Tech firms, manufacturers, retail chains, banks, and most private corporations. | City halls, state agencies, public universities, fire departments, and nonprofit hospitals. |
| Common Example | Google's 401k plan offers a 50% match up to $10,000 annually. | California's Savings Plus 457 plan serves state employees with no employer match. |
| Primary Limitation | Early withdrawal penalty and limited investment choices compared to self-directed IRAs. | Non-governmental 457 plans lack ERISA protection; assets remain subject to employer creditors. |
| Best Fit Scenario | Private-sector employees seeking employer match and broad investment fund selection. | Government or nonprofit workers wanting penalty-free early access and extra contribution capacity. |
A 401k is a tax-advantaged retirement savings plan offered by for-profit employers. It lets workers contribute pre-tax income directly from their paychecks. Employers often match a portion of contributions, boosting retirement savings. This plan helps employees build long-term wealth with automatic payroll deductions.
A 401k is a defined-contribution retirement account under Internal Revenue Code Section 401(k). Employees elect to defer a percentage of salary, up to annual IRS limits, into investment options like mutual funds. Contributions grow tax-deferred until withdrawal, typically after age 59½, when distributions are taxed as ordinary income.
| Characteristic | What It Means in Practice |
|---|---|
| Pre-tax contributions | Money goes in before income tax, lowering your current taxable income each pay period. |
| Employer match | Many companies match a percentage of your contributions, effectively giving free money for retirement. |
| Annual contribution limit | In 2025, you can defer up to $23,500, with an extra $7,500 catch-up for those aged 50 or older. |
| Tax-deferred growth | Investment earnings compound without annual capital gains taxes, allowing balances to grow faster. |
| Early withdrawal penalty | Taking money before age 59½ triggers a 10% IRS penalty plus ordinary income tax on the amount. |
| Required minimum distributions | Starting at age 73, you must take annual withdrawals based on IRS life-expectancy tables. |
| Limited investment menu | Your plan offers a set list of funds, often including target-date, index, and actively managed options. |
| Loan provisions | Most plans allow borrowing up to $50,000 or 50% of your vested balance, repaid with interest to your account. |
| Vesting schedule | Employer match funds become yours over time, typically fully vested after 3 to 6 years of service. |
| Portability | When changing jobs, you can roll over the balance to an IRA or a new employer's plan without tax consequences. |
| Advantages | Limitations |
|---|---|
| Immediate tax deduction lowers your annual income tax bill, freeing cash for other needs. | Withdrawals before age 59½ incur a 10% penalty, making emergency access expensive and rare. |
| Employer matching contributions provide a guaranteed return on your savings, often 50-100% of your first 6%. | Investment choices are limited to the plan's menu, preventing you from buying individual stocks or ETFs. |
| Automatic payroll deductions make saving effortless, reducing the temptation to spend that money. | Required minimum distributions at age 73 force taxable withdrawals even if you don't need the income. |
| Tax-deferred growth allows compounding without annual capital gains taxes, potentially increasing long-term returns. | Plan fees, including administrative and fund expense ratios, can reduce your net returns over decades. |
| High contribution limits ($23,500 in 2025) enable substantial annual savings beyond IRAs. | Vesting schedules mean you lose unvested employer match if you leave before the full vesting period. |
| Creditor protection under ERISA shields your balance from lawsuits and bankruptcy claims. | Loans must be repaid within 5 years, and defaulting triggers penalties plus immediate income tax. |
| Roth 401k options provide tax-free withdrawals in retirement, hedging against future tax rate increases. | Income limits don't apply, but high earners may face reduced contribution benefits in some plans. |
| Rollover flexibility lets you move funds to an IRA or new employer without losing tax status. | In-service withdrawals are usually prohibited before age 59½, even for hardship reasons beyond IRS exceptions. |
| Automatic rebalancing options maintain your target asset allocation without manual effort. | Contribution limits are shared across multiple 401k plans, preventing double-dipping with different employers. |
| Spousal beneficiary rights ensure your partner inherits the balance without probate delays. | Unlike a 457 plan, a 401k has no special penalty-free withdrawal provision for public employees retiring early. |
A 457 plan is a tax-advantaged deferred compensation retirement plan offered by state and local governments, plus certain non-profits. It lets you save pre-tax income for retirement, often with no 10% early-withdrawal penalty. This plan exists to supplement other retirement savings like IRAs or 401k plans.
A 457(b) plan is a non-qualified deferred compensation arrangement under Internal Revenue Code Section 457(b). It allows eligible employees to defer a portion of compensation into an individual account. Unlike 401k plans, 457 plans are not subject to the 10% early distribution penalty if you leave your employer after age 59½ or even earlier in some cases.
| Characteristic | What It Means in Practice |
|---|---|
| Eligible employers | State/local governments and tax-exempt 501(c)(3) non-profits sponsor these plans. |
| No 10% penalty | Withdrawals before age 59½ avoid the 10% early-withdrawal penalty that applies to 401k and IRA plans. |
| Separate contribution limit | You can contribute up to $23,500 in 2025, but this limit is separate from your 401k limit. |
| Catch-up provision | Workers aged 50+ can add $7,500 extra, but a special 3-year catch-up may allow up to double the standard limit. |
| No required minimum distribution | Unlike 401k plans, RMDs are delayed until you actually retire, not just turn 73. |
| Deferred compensation | Contributions are taken from gross pay before taxes, reducing your current taxable income. |
| Vesting rules | Employer contributions may have a vesting schedule; your own deferrals are always 100% vested. |
| Distribution options | You can take a lump sum, periodic payments, or roll over to an IRA or 401k when you leave. |
| Loan availability | Loans are generally allowed in government 457 plans, but not in most non-profit 457(b) plans. |
| No coordination with 401k | You can max out both a 457 and a 401k in the same year, doubling your total retirement savings. |
| Advantages | Limitations |
|---|---|
| No 10% early-withdrawal penalty before age 59½, unlike 401k or IRA plans. | Only available to government and select non-profit employees, not private-sector workers. |
| Separate contribution limit from 401k, allowing you to save up to $47,000 in 2025. | Non-governmental 457 plans are not protected by ERISA, so assets can be seized by creditors. |
| RMDs are delayed until actual retirement, not forced at age 73 like 401k plans. | Employer matching contributions are rare; most 457 plans are employee-funded only. |
| Special 3-year catch-up lets you contribute double the standard limit before retirement. | Withdrawals are taxed as ordinary income, with no capital gains treatment on growth. |
| Loans are permitted in government 457 plans, offering liquidity in emergencies. | Non-profit 457(b) plans generally prohibit loans, limiting access to your money. |
| Contributions reduce current taxable income, lowering your annual tax bill. | If you leave your job, you must take a distribution or roll over; you cannot leave it indefinitely. |
| You can roll a 457 into an IRA or 401k without tax consequences when you separate. | High-income earners may face limits on how much they can defer due to non-discrimination rules. |
| No coordination with 403(b) or 401k limits, so you can max out multiple plans. | Plan fees can be higher than low-cost index funds in a self-directed IRA. |
| Distributions can be structured as periodic payments, providing steady retirement income. | If your employer goes bankrupt, non-governmental 457 assets are not protected from creditors. |
| You can start withdrawals immediately after separation, even before age 55, without penalty. | Contribution limits are lower than defined-benefit pensions, requiring you to save more. |
| Shared Aspect | How 401k and 457 Are Alike |
|---|---|
| Core Purpose | Both the 401k and 457 plans are tax-advantaged retirement savings vehicles designed to replace income during your non-working years. |
| Primary Users | Employees of private companies use 401k plans, while state and local government workers typically use 457 plans for retirement. |
| Pre-Tax Contributions | Traditional 401k and 457 accounts allow you to make pre-tax contributions, which directly reduce your current taxable gross income. |
| Tax-Deferred Growth | Investment earnings inside both a 401k and 457 grow tax-deferred, meaning you pay no capital gains tax until you withdraw funds. |
| Contribution Limits | The IRS sets an identical annual employee contribution limit for both 401k and 457 plans, which is $23,500 for the year 2025. |
| Catch-Up Provision | Workers aged 50 or older can make additional catch-up contributions to both a 401k and 457, adding an extra $7,500 in 2025. |
| Employer Sponsorship | Both 401k and 457 plans are exclusively offered through an employer, meaning you cannot open either type of account independently. |
| Payroll Deduction | Contributions to both a 401k and 457 are automatically deducted from your paycheck, making the savings process simple and consistent. |
| Investment Menu | Both plan types provide a curated menu of mutual funds, target-date funds, and index funds chosen by the employer's plan administrator. |
| Distribution Rules | Withdrawals from both a 401k and 457 are subject to ordinary income tax at your current federal tax bracket in the year of distribution. |
| Rollover Eligibility | You can roll over funds from a 401k or 457 into an IRA or another eligible employer plan without triggering immediate tax penalties. |
| Creditor Protection | Both 401k and 457 plan assets are generally protected from creditors and bankruptcy proceedings under federal law (ERISA for 401k). |
| Required Minimum Distributions | Both 401k and 457 plans require you to start taking required minimum distributions (RMDs) after you reach age 73. |
| Spousal Beneficiary | A surviving spouse can treat an inherited 401k or 457 as their own, deferring RMDs until they reach the required age. |
| Loan Provisions | Many 401k and 457 plans allow you to borrow against your account balance, with a maximum loan limit of $50,000 or 50% of vested funds. |
| Hardship Withdrawals | Both plan types permit penalty-free hardship withdrawals for immediate and heavy financial needs like medical expenses or funeral costs. |
| Plan Administrator | A third-party financial institution, such as Fidelity or Vanguard, typically administers both 401k and 457 plans for the employer. |
| Vesting Schedules | Employee contributions to a 401k or 457 are always 100% vested, while employer matching contributions follow a defined vesting schedule. |
| Employer Match | Both 401k and 457 plans may offer an employer matching contribution, often matching 50% of your contributions up to 6% of salary. |
| Contribution Deadline | Employee contributions to both 401k and 457 plans must be made by December 31st of the tax year, unlike IRAs which allow April 15th. |
| After-Tax Option | Both plan types offer a Roth option, allowing you to make after-tax contributions and enjoy completely tax-free withdrawals in retirement. |
| Income Tax Reporting | Distributions from both a 401k and 457 are reported on IRS Form 1099-R, and you must include the taxable amount on your tax return. |
| Early Withdrawal Penalty | Withdrawing funds before age 59½ from either a 401k or 457 typically triggers a 10% early withdrawal penalty plus income tax. |
| Non-Spouse Beneficiary | Non-spouse beneficiaries of a 401k or 457 must take distributions over 10 years under the SECURE Act's 10-year rule. |
| Plan Document Rules | Both 401k and 457 plans operate under a formal written plan document that dictates eligibility, investments, and distribution procedures. |
| Financial Hardship | Both plans allow for in-service withdrawals only under specific financial hardship conditions, such as preventing eviction or paying tuition. |
| Long-Term Growth | Both 401k and 457 accounts benefit from compound interest over decades, allowing modest contributions to grow into substantial retirement funds. |
| Portability | When you leave an employer, both a 401k and 457 can be moved to a new employer's plan or an IRA without losing tax advantages. |
| Automatic Enrollment | Many employers now automatically enroll new hires into either a 401k or 457 at a default contribution rate, such as 3% of salary. |
| Retirement Readiness | Both 401k and 457 plans serve as the primary retirement savings tool for millions of American workers, helping them build financial security. |
The deciding variable is your employer type: a 457(b) is available only to state/local government and select nonprofit workers, while a 401(k) serves private-sector employees. If you qualify for both, choose the 457(b) when you need penalty-free withdrawals before age 59½, because it lacks the 10% early-withdrawal penalty that applies to 401(k)s.
Choose 401k when you work for a private company or a for-profit entity and want employer matching contributions, which most 457(b) plans do not offer. The 401(k) also provides a higher combined contribution limit of $23,500 in 2025 (plus $7,500 catch-up if you are 50+), versus the 457(b)'s separate $23,500 limit. Use the 401(k) first if your employer matches, because that match is free money that a 457(b) rarely provides.
Choose 457 when you work for a state, local government, or tax-exempt nonprofit (like a hospital or university) and want zero early-withdrawal penalties—you can take money out before age 59½ without the 10% IRS penalty. The 457(b) also offers a double catch-up: if you are within 3 years of normal retirement age, you can contribute up to $47,000 in 2025. Use the 457(b) first if you anticipate needing funds before retirement, because 401(k)s lock those dollars until 59½ unless you pay the penalty.
| Common Myth | The Reality |
|---|---|
| “A 401k and a 457 plan are basically the same retirement account.” | They differ in employer type, withdrawal rules, and penalty exemptions; a 401k serves private companies, while a 457 serves government and tax-exempt organizations. |
| “You can withdraw from a 457 before age 59½ without any penalty.” | Correct, but only after you separate from service; a 457 has no 10% early-withdrawal penalty, unlike a 401k, which penalizes most pre-59½ distributions. |
| “Both 401k and 457 plans allow penalty-free hardship withdrawals anytime.” | Hardship withdrawals from a 401k still incur the 10% penalty if under 59½; a 457 allows penalty-free hardship withdrawals, but the plan must permit them. |
| “Your 457 plan assets are owned by your employer, not by you.” | 457 assets remain your property, but they stay in the employer’s trust; if the employer goes bankrupt, 457 funds are generally protected from creditors. |
| “You can contribute the same annual limit to both a 401k and a 457.” | Yes, you can max out both in the same year; the 2025 limit is $23,500 each, plus separate $7,500 catch-up contributions, if eligible. |
| “A 457 plan is only available to police officers and firefighters.” | 457 plans cover all state and local government employees, plus many nonprofit workers; police and firefighters are just one eligible group. |
| “Rolling a 457 into a 401k triggers immediate income tax.” | A direct rollover from a 457 to a 401k is tax-free; taxes apply only when you withdraw funds later, not at the time of the rollover. |
| “The 457 catch-up contribution is identical to the 401k catch-up.” | 457 plans offer a special “last three years” catch-up allowing up to double the normal limit; 401k catch-up is a fixed $7,500 for those 50 or older. |
| “You cannot have both a 457 and a 401k from the same employer.” | Some employers, like certain hospitals, offer both plans; you can contribute to each, but combined contributions must respect each plan’s individual limit. |
| “A 457 plan has no required minimum distributions (RMDs) at age 73.” | 457 plans do require RMDs starting at age 73, but if you are still working, you can delay them until retirement, unlike a 401k. |
| “All 457 plans are governmental, so they all follow ERISA rules.” | Only governmental 457(b) plans follow ERISA; non-governmental 457(b) plans for nonprofits have fewer protections and are not ERISA-covered. |
| “You can borrow money from your 457 plan like you can from a 401k.” | Most 457 plans do not allow loans; a 401k often permits borrowing up to $50,000, but 457 participants must use hardship withdrawals instead. |
| “A 457 plan is always better than a 401k because it has no penalties.” | No penalty is a key advantage, but a 401k may offer employer matching; a 457 rarely matches, so compare matching, fees, and investment options. |
| “If you leave your job, your 457 plan must be cashed out immediately.” | You can leave your 457 balance invested or roll it over; a forced cash-out only happens if your balance is below $5,000, per plan rules. |
| “A 457 plan is only for retirement, not for saving for a house.” | You can withdraw from a 457 for a home purchase after separation, but you pay income tax; there is no penalty, unlike a 401k. |
| “The 457 plan contribution limit is lower than the 401k limit.” | Both share the same base limit of $23,500 in 2025; the 457 also offers a special pre-retirement catch-up that can exceed the 401k limit. |
| “Your 457 plan is protected from lawsuits just like a 401k.” | Governmental 457 plans get ERISA protection from creditors; non-governmental 457 plans are not protected and can be seized in bankruptcy. |
| “You can withdraw from a 457 at any age if you still work for the employer.” | While still employed, you generally cannot withdraw from a 457 unless you face an unforeseeable emergency; separation is required for normal withdrawals. |
| “A 457 plan and a 403(b) plan are the same thing.” | They are different; a 403(b) serves public schools and nonprofits with 401k-like rules, while a 457 serves government and tax-exempt employers. |
| “You can only contribute to a 457 if you are a highly compensated employee.” | Any employee of an eligible government or nonprofit can contribute to a 457; there is no income restriction for participation. |
| “A 457 plan’s investment options are always worse than a 401k’s.” | Investment quality depends on the plan sponsor; many governmental 457 plans offer low-cost index funds comparable to or better than 401k menus. |
| “If you die, your 457 plan automatically goes to your estate, not your heirs.” | You name a beneficiary for your 457, and they receive the balance directly; your estate only receives it if no beneficiary is named. |
| “A 457 plan is not subject to the same contribution limits as a 401k.” | Both follow the same IRS elective deferral limit of $23,500 in 2025; the 457’s special catch-up provision is the only difference in limits. |
| “You can roll a 401k into a 457 without any tax consequences.” | Yes, a direct rollover from a 401k to a 457 is tax-free; however, the 457 plan must accept the rollover, and some plans do not allow it. |
| “A 457 plan is always sponsored by the federal government.” | Federal employees use the Thrift Savings Plan, not a 457; state, county, and municipal governments, plus nonprofits, sponsor 457 plans. |
| “You cannot contribute to a 457 and a Roth IRA in the same year.” | You can contribute to both; the 457 limit is separate from the $7,000 Roth IRA limit for 2025, but your income may limit Roth eligibility. |
| “A 457 plan requires you to take withdrawals at age 70½, not 73.” | SECURE 2.0 raised the RMD age to 73 for both 457 and 401k plans; the old 70½ rule no longer applies to any of these accounts. |
| “Your 457 plan balance counts against your 401k contribution limit.” | They are separate limits; you can contribute $23,500 to a 457 and another $23,500 to a 401k in 2025, totaling $47,000. |
| “A 457 plan is only for retirement, so you cannot withdraw for education.” | After separation from service, you can withdraw from a 457 for any purpose, including education, without penalty; income tax still applies. |
| “Non-governmental 457 plans are safe because they are insured by the PBGC.” | The PBGC does not insure 457 plans; non-governmental 457 benefits are uninsured, and your balance can be lost if the employer goes bankrupt. |
Difference Between 401k and 457 comes down to employer type and withdrawal flexibility. Choose a 401k for private-sector jobs with matching contributions. Choose a 457 for government or nonprofit work, especially if you plan early retirement, since it avoids the 10% early-withdrawal penalty entirely.
## FAQ ### What is the difference between a 401k and a 457 plan? A 401k is an employer-sponsored retirement plan for private-sector or for-profit employees, while a 457 plan is exclusively for state, local government, and tax-exempt nonprofit workers, offering separate contribution limits. ### Which plan is better for early retirement, a 401k or a 457? A 457 plan is better for early retirement because it has no 10% early-withdrawal penalty before age 59½, whereas a 401k imposes that penalty unless you meet specific exceptions like separation after age 55. ### Can you contribute to both a 401k and a 457 in the same year? Yes, you can contribute to both plans simultaneously because the IRS treats them as separate employers, allowing you to max out the $23,500 limit for each in 2025, totaling $47,000 before catch-up contributions. ### What are the contribution limits for a 457 plan compared to a 401k? The contribution limits are identical at $23,500 for 2025, but the 457 offers a unique "last-three-years" catch-up provision that lets you contribute up to double the standard limit, which the 401k does not provide. ### Is a 457 plan riskier than a 401k? A 457 plan carries higher employer-insolvency risk because your assets remain part of the government or nonprofit's general assets, whereas a 401k is held in a trust, legally protected from employer bankruptcy. ### Can I roll over a 401k into a 457 plan without tax consequences? Yes, you can roll over a 401k into a 457 plan as a direct trustee-to-trustee transfer, which avoids taxes and penalties, but confirm your specific 457 plan accepts rollovers because not all government plans do. ### What happens to my 457 plan if I leave my government job? If you leave your government job, your 457 balance stays invested and you can withdraw it without the 10% early-penalty, but you must roll it into an IRA or another employer plan to avoid immediate income taxes. ### Which plan has lower fees, a 401k or a 457? Neither plan has a universal fee advantage, but government 457 plans often have lower administrative fees than private 401k plans due to pooled purchasing power, while nonprofit 457s may charge higher recordkeeping fees. ### Can a 457 plan be used for a first-time home purchase without penalty? No, a 457 plan does not allow penalty-free withdrawals for a first-time home purchase, unlike an IRA, so you must pay ordinary income tax plus the 10% early-withdrawal penalty if you are under age 59½. ### Is a 457 plan better than a 401k for high-income earners? A 457 plan is better for high-income earners because its special catch-up provision allows up to $47,000 in 2025 for those nearing retirement, and it avoids the 401k's additional 6% penalty for excess contributions over the limit.