Chapter 7: Other Employer-Sponsored Retirement Plans

In the last two chapters, we’ve taken a deep dive into the most common types of employer-sponsored retirement plans – 401(k) plans and pension plans. However, these are not the only options. Many employers offer a variety of other retirement plans, each with its own set of rules and benefits. In this chapter, we’ll explore some of these alternative plans, including 403(b) plans, 457(b) plans, and SIMPLE and SEP IRA plans.

403(b) Plans

If you work for a public school, a college or university, a church, or a charitable organization, you might have access to a 403(b) plan. This type of retirement plan, also known as a tax-sheltered annuity (TSA) plan, operates very similarly to a 401(k) plan.

Your contributions are typically made on a pre-tax basis, which means they reduce your taxable income for the year. The money then grows tax-deferred until you withdraw it in retirement, at which point it’s taxed as ordinary income.

A key advantage of 403(b) plans is that they sometimes offer additional catch-up contributions over and above the regular catch-up contributions allowed for those aged 50 and above. If you’ve worked for the same employer for at least 15 years, you might be eligible to contribute an extra $3,000 a year up to a lifetime limit of $15,000.

457(b) Plans

457(b) plans are another type of deferred compensation retirement plan, but they’re specifically designed for employees of state and local governments and some nonprofit organizations. The contribution limits for a 457(b) plan are the same as those for a 401(k) and 403(b) plan.

One unique feature of 457(b) plans is that there is no 10% penalty for withdrawals made before age 59 1/2, although the withdrawals are still subject to regular income tax. This can make a 457(b) plan a good option if you’re planning an early retirement.

Also, if you’re nearing retirement, a 457(b) plan may allow a “double limit” catch-up contribution. In the three years before reaching the plan’s normal retirement age, you may be able to contribute twice the annual limit, allowing you to significantly boost your retirement savings.


The Savings Incentive Match Plan for Employees (SIMPLE) IRA is a type of traditional IRA that is set up by small businesses for their employees. As an employee, you can make contributions to your SIMPLE IRA, and your employer is required to make contributions as well.

One feature that distinguishes SIMPLE IRAs from other employer-sponsored retirement plans is the matching contribution structure. Your employer can either match your contributions dollar for dollar up to 3% of your compensation, or contribute a fixed 2% of your compensation for all eligible employees, regardless of whether they contribute to the plan.

It’s important to note that the contribution limits for SIMPLE IRA plans are lower than those for 401(k) and 403(b) plans. However, for employees of small businesses who might not have access to these other types of plans, SIMPLE IRAs can provide a valuable opportunity to save for retirement on a tax-advantaged basis.


Simplified Employee Pension (SEP) IRA plans are another type of retirement plan option for small businesses. Unlike SIMPLE IRAs, SEP IRAs are entirely funded by employer contributions – employees cannot contribute their own money.

An advantage of SEP IRA plans is the high contribution limit. In 2023, employers can contribute up to 25% of an employee’s compensation or $61,000, whichever is less. This makes SEP IRAs a potentially attractive option for self-employed individuals or small business owners looking to save a substantial amount for retirement.

Employer-sponsored retirement plans come in many forms, each with its own set of rules, advantages, and considerations. By understanding the options available to you, you can take full advantage of these plans to maximize your retirement savings and set yourself up for a secure financial future.

In the next module, we’ll look at individual retirement accounts (IRAs) and self-employed retirement plans, further expanding your knowledge of retirement planning options.


  • Lily Kensington

    Lily Kensington is a financial psychologist, a proud member of the ANZA Psychological Society, and a passionate advocate for financial wellness. A former high school English teacher and psychology graduate, Lily brings a unique perspective to her writing that blends the intricacies of psychology with the world of finance.Over the past decade, Lily has dedicated her life to helping individuals and couples navigate their emotional relationship with money. Her empathetic and intuitive approach, honed through her counselling practice, breaks down complex financial concepts into relatable and practical advice. Lily's writing often reflects her personal journey as a single mother, providing valuable insights and support for fellow single parents navigating the world of personal finance.In addition to her numerous contributions to wellness and personal development blogs, Lily is the author of the book "The Heart of Money: A Psychological Guide to Financial Wellness."In front of the camera or behind the pen, Lily's mission remains the same: to help others achieve financial peace by understanding the psychology of money.

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