By Evelyn Waugh457 Plan vs. 403(b): Key Differences Explained
By Evelyn Waugh
Government and nonprofit employees can use 457 and 403(b) plans to save for retirement and get tax advantages. Each plan has some differences to consider before you invest.
The biggest differences between a 457 and 403(b) plan come down to withdrawal flexibility, catch-up contributions and eligibility. Most employees only qualify for one plan, but if you can choose between a 457 and a 403(b), it's important to understand how they compare. Here's what you need to know.
| 457 Plan | 403(b) Plan | |
|---|---|---|
| Who qualifies | Government and some nonprofit employees | School, nonprofit and church employees |
| Early withdrawal | No penalty if no longer with employer | 10% penalty before age 59½ |
| Employer match | Counts toward limit | Doesn't count toward limit |
What Is a 457 Plan?
A 457 plan is a type of retirement savings account for state and local government employees, as well as some nonprofit employees. Participants defer a portion of each paycheck into the account. The money grows tax-deferred until withdrawal.
457 Plan Eligibility Requirements
To qualify for a 457 plan, you'll need to work for an employer who sponsors the plan. There are two main types of 457 plans to be aware of:
- A 457(b) plan is designed for public sector employees like municipal employees and civil servants. They are the more common 457 plan.
- A 457(f) plan is available to some hospital and nonprofit executives. These may be offered to top-level executives at certain nonprofits as a way to attract and retain talent.
457 Plan Contribution Limits
For the 2026 tax year, the annual contribution limit for a 457 account is $24,500.
A 457(b) plan also offers special catch-up contributions—more on this below.
Tip: Your 457(b) contributions can't exceed your includable compensation, which is the compensation you received from the employer that sponsors the plan.
457(f) Plan Contribution Limits
There is no dollar limit for contributions to a 457(f) plan. However, contributions to a 457(f) plan are at substantial risk of forfeiture: Employees can lose the money in the plan if they don't remain in their position for a given period of time, such as two years. This stipulation, sometimes referred to as "golden handcuffs," is specific to 457(f) plans and won't affect employees with other types of retirement accounts, including 457(b) plans and 403(b) plans.
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Pros and Cons of 457 Plans
Balance the benefits of a 457 plan with the limitations or risks to decide if it's a good tool for your retirement savings. Here are the pros and cons.
Pros
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Tax-advantaged growth: Your 457 contributions grow without tax until you withdraw the money in retirement.
-
Easy rollover: If you leave your position, you can easily move your 457 balance into a 401(k) or IRA.
-
Catch-up contributions: Employees ages 50 and older contributing to a 457(b) plan may be eligible to make catch-up contributions up to $8,000 in 2026. Some 457(b) plans also offer special catch-up contribution rules for employees within three years of retirement age. If you qualify, you may be able to contribute up to twice the annual limit or the annual limit plus eligible money you didn't contribute in prior years. If your plan allows both standard catch-up contributions and the special three-year catch-up, you can use whichever one allows you to contribute the most, but you can't use both.
-
Flexible withdrawals: Unlike many other types of retirement accounts that penalize early withdrawals, employees who leave their employer can withdraw their funds without facing a 10% penalty. (You'll still owe income tax on withdrawals, however.) This flexibility may be a perk, although you should avoid tapping into your retirement funds to maximize your retirement savings.
Cons
-
Employer matches count towards contribution limit: If your employer offers to match your 457 plan contributions, their match will count towards your annual contribution limit.
-
Forfeiture of your 457(f): If you have a non-governmental 457(f) plan, you're at risk of losing the money in the plan if you leave your job within a certain period of time.
What Is a 403(b) Plan?
A 403(b) plan, like a 457 plan, is a tax-advantaged retirement account offered only by certain employers. Unlike 457 plans, 403(b) plans are available to certain employees of public schools, nonprofits and religious organizations.
403(b) Plan Eligibility Requirements
To qualify for a 403(b) plan, you'll need to work for an employer who sponsors the plan. These employers include public educational institutions like public schools, colleges and universities, certain tax-exempt organizations and some churches.
403(b) Plan Contribution Limits
For the 2026 tax year, the annual contribution limit for a 403(b) account is $24,500. Like a 457 plan, your 403(b) contributions can't exceed your includible compensation.
Additionally, 403(b) plans allow for special catch-up contributions (see below).
Pros and Cons of 403(b) Plans
Like 457 plans, 403(b)s have their advantages and drawbacks.
Pros
-
Tax-advantaged growth: Your 403(b) contributions grow without tax until you withdraw the money in retirement.
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Easy rollover: If you leave your position, you can transfer your 403(b) balance into an IRA without penalty. You can also bring your balance with you to another employer-sponsored retirement account, like a 401(k) account or another 403(b) account.
-
Special 403(b) catch-up: Employees ages 50 or over who invest in 403(b) plans may be eligible to make catch-up contributions up to $8,000 in 2026.
Cons
-
Early withdrawal penalties: Just like 401(k)s or IRAs, most 403(b) withdrawals before age 59½ are subject to a 10% early withdrawal penalty.
-
Possibility for high fees: Some 403(b) plans are associated with high fees, especially those that deal mainly in annuities. However, an increasing number of 403(b) plans offer lower-cost mutual fund products.
Key Differences Between a 457 Plan and a 403(b) Plan
The major differences between 457 plans and 403(b) plans is their treatment of catch-up contributions and withdrawal rules. If you have the option to choose between the two plans, you should consider these factors when determining which is better for you.
Catch-Up Contributions
While both 457(b) and 403(b) plans allow contributions up to $24,500 per year or the employee's maximum includable income, they differ in their treatment of catch-up contributions. Both plans may allow employees ages 50 and older to make additional annual catch-up contributions of $8,000 per year (in the year 2026).
But here's where they differ: 457(b) plans may allow employees to make special catch-up contributions within three years of retirement that can double what they're eligible to contribute. Some 403(b) plans may offer a special 15-year catch-up rule that allows employees with 15 years of service or more to make an additional $3,000 contribution per year.
Withdrawal Rules
Most retirement accounts require you to wait until age 59½ to withdraw your funds without being hit with a 10% penalty. While 403(b) plans are both still subject to this rule, 457(b) plans differ in that employees may be able to withdraw their funds without penalty if they no longer work for the employer who sponsored the plan.
Should You Choose a 457 or 403(b)?
Most people won't have to choose between a 457(b) and a 403(b) because most workplaces sponsor only one plan. If you do have the option to choose, your first priority should be exhausting your employer's contribution match, if they offer one. If your employer matches your contributions to one account but not the other, start by funding that account up to your employer's maximum match.
After you've exhausted the match, consider your career plans. If you plan to remain with the same employer for 15 years or more, the 403(b) 15-year catch-up contribution rule may allow you to contribute more pretax money. On the other hand, if you think you'll continue to work for your employer until within three years of retirement age, the double contributions a 457 plan offers these employees can help you invest more before you retire.
Can You Have Both a 457(b) Plan and a 403(b) Plan?
If your employer offers both a 457 and a 403(b) plan, it's possible to invest in both.
Investing in both a 457 and 403(b) plan will allow you to contribute more tax-advantaged money. The contribution limits for each plan are separate, meaning you can fund both accounts to their maximum.
The Bottom Line
Investing your money is essential for attaining financial freedom in retirement, and employer-sponsored retirement accounts can help. Both 403(b) and 457 plans allow you to invest money on a pretax basis. If you're not sure what you qualify for through your workplace, consult your employer's human resources department.
If you need additional help considering what investment options work best for you, reach out to a financial advisor to come up with a plan for your money.
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About the author
Evelyn Waugh
Evelyn Waugh is a personal finance writer covering credit, budgeting, saving and debt at Experian. She has reported on finance, real estate and consumer trends for a range of online and print publications.
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