Learn how 401(k), 457(b), and TSP plans differ in rules, penalties, contribution limits, and oversight — and which one applies to you
Quick Summary: All three plans let you save for retirement with pre-tax dollars, but they operate under different laws, different penalty rules, and different oversight bodies. Which one you have depends on where you work, and the differences can have a real impact on when and how you access your money.
, 401(k), 457(b), and TSP plans are all tax-advantaged defined contribution retirement accounts. You contribute pre-tax dollars, the money grows tax-deferred, and you pay ordinary income taxes when you withdraw funds in retirement. All three plans share the same standard contribution limit in 2026: $24,500 per year. Workers ages 50 through 59 and age 64 and older can contribute an additional $8,000 in catch-up contributions, for a total of $32,500. Under SECURE Act 2.0, workers ages 60 through 63 qualify for an enhanced catch-up contribution of $11,250, raising their annual limit to $35,750.
The similarities, for the most part, end there.
The 401(k) is the most widely recognized retirement savings plan in the United States, and it is almost exclusively a private sector tool. 401(k) plans are governed by the Employee Retirement Income Security Act of 1974 (ERISA), which sets minimum standards for plan design, fiduciary responsibility, and participant disclosures. ERISA’s rules are jointly enforced by the Department of Labor and the IRS.
One of the defining features of the 401(k) is its early withdrawal penalty. Distributions taken before age 59½ are generally subject to a 10% penalty on top of ordinary income taxes. There are exceptions such as separation from service at age 55 or older, disability, death, and several new categories added by SECURE Act 2.0 such as terminal illness, domestic abuse, and emergency personal expenses — but the 10% penalty remains the default rule for early access.
Employer matching contributions are common in 401(k) plans, though the amount and structure vary by employer. There is no statutory match requirement.
State and local government employees, including teachers, police officers, firefighters, and county and city workers, typically have access to a 457(b) deferred compensation plan. These plans are authorized under IRC Section 457 and are not subject to ERISA. Governmental 457(b) plans are governed instead by the sponsoring government entity’s plan documents and IRS rules applicable to deferred compensation.
The most significant difference between a governmental 457(b) and a 401(k) is the absence of the 10% early withdrawal penalty. Under IRC Section 72(t)(9), distributions from governmental 457(b) plans are categorically excluded from the 10% additional tax. Once you separate from your government employer, you can access your 457(b) funds at any age and owe only ordinary income taxes. This makes the 457(b) especially valuable for government employees who retire in their 50s or earlier.
One important caveat: the no-penalty rule applies only to governmental 457(b) plans maintained by state or local government employers. Non-governmental 457(b) plans offered by tax-exempt nonprofits such as hospitals and charities operate under different rules and do not carry the same exemption. If you are unsure which type of 457(b) you have, check with your plan administrator.
Employer contributions to 457(b) plans are less common than in the 401(k) world, and the structures that do exist vary significantly by employer.
The Thrift Savings Plan (TSP) is the retirement savings vehicle for federal civilian employees and members of the uniformed services. It functions similarly to a 401(k), but it operates under an entirely different legal framework.
The TSP is not governed by ERISA. It was established by the Federal Employees’ Retirement System Act of 1986 (FERSA) and is administered by the Federal Retirement Thrift Investment Board (FRTIB), an independent federal agency. The FRTIB sets investment options, manages plan operations, and oversees fiduciary standards for TSP participants. Because the federal government is exempt from ERISA, TSP participants do not have the same ERISA protections that apply to private sector 401(k) participants, though the FRTIB operates under its own statutory fiduciary obligations established by FERSA.
For employees under the Federal Employees Retirement System (FERS), the TSP offers one of the most generous employer match structures of any retirement plan: an automatic 1% agency contribution plus a dollar-for-dollar match on the first 3% of salary contributed and a 50-cent-per-dollar match on the next 2%, for a total match of up to 5% of salary for employees who contribute at least 5%. Not contributing enough to get the full match is one of the biggest TSP mistakes you can make while actively working.
The TSP offers a limited but low-cost investment menu: the G Fund (return is based off government securities), F Fund (fixed income index), C Fund (large-cap stock index), S Fund (small-cap stock index), I Fund (international stock index), and a series of Lifecycle funds that automatically adjust allocation based on a target retirement date. Expense ratios are among the lowest of any retirement plan available. There is also a mutual fund window that is similar to a brokerage account found in some 401(k)s. While offering around 5000 more options via a wide array of mutual funds, it can be expensive and complex if you’re not working with a financial advisor.
For early withdrawals, the TSP follows rules similar to a 401(k): the 10% penalty applies before age 59½, with an exception for separation from federal service at age 55 or older. Public safety employees — including federal law enforcement officers, firefighters, and air traffic controllers — qualify for an earlier exception at age 50.
| Feature | 401(k) | 457(b) Governmental | TSP |
|---|---|---|---|
| Who it covers | Private sector employees | State/local government employees | Federal employees, uniformed services |
| Governing law | ERISA | IRC § 457; not ERISA | FERSA; administered by FRTIB |
| 2026 contribution limit | $24,500 | $24,500 | $24,500 |
| 10% early withdrawal penalty | Yes (before age 59½) | No — categorical exemption under IRC § 72(t)(9) | Yes (before age 59½) |
| Separation-from-service exception | Age 55 or older | N/A (no penalty to waive) | Age 55 (age 50 for public safety) |
| Employer match | Common; varies by employer | Less common; varies by employer | Up to 5% (FERS employees) |
| Investment options | Varies widely by plan | Varies widely by plan | 5 core funds + Lifecycle funds |
If you work in the private sector, you likely have a 401(k). If you work for a state or local government, you most likely have a 457(b) and may also have access to a pension depending on your employer. If you are a federal civilian employee or serve in the uniformed services, your defined contribution plan is the TSP.
Have questions about your government retirement plan? Government Retirement Solutions helps federal, state, and local government employees navigate their benefits and build a retirement strategy that fits their situation.
Schedule a free, no-obligation consultation with a GRS specialist. We’ll review your pension, TSP, insurance, and Medicare options—and build a personalized plan.
