403(b) vs. 457(b): What’s the Difference?

A 403(b) and a 457(b) can both help eligible workers begin saving for retirement on a tax-advantaged basis, but the plans are not interchangeable. A 403(b) is commonly offered by public schools, certain nonprofits and churches, while 457(b) plans are available through state and local governments and some tax-exempt organizations. The two plans also have different catch-up rules and early-withdrawal treatment, and some workers may even be able to contribute to both in the same year. Understanding those differences can help you decide how to prioritize your retirement savings.

A financial advisor can also provide advice and guidance tailored to your retirement planning needs.

What Is a 403(b) Plan?

A 403(b) plan is a tax-advantaged retirement savings plan available to certain employees of public schools, 501(c)(3) tax-exempt organizations and churches, as well as certain ministers. It is sometimes called a tax-sheltered annuity plan.

Similar to 401(k) plans, 403(b) plans can allow employees to make traditional pre-tax contributions, and some plans also offer Roth contributions. Traditional contributions generally reduce current taxable income and are taxed when withdrawn, while qualified Roth distributions can be tax-free. Employers may also make matching or nonelective contributions if the plan permits.

A taxable 403(b) distribution before age 59 ½ may be subject to the 10% additional tax unless an exception applies. One important exception can apply if you separate from service during or after the calendar year in which you turn 55.

What Is a 457(b) Plan?

A 457(b) plan is a tax-advantaged deferred-compensation plan that can be offered by state and local governments as well as certain tax-exempt organizations. Governmental and nongovernmental 457(b) plans can follow different rules, so it is important to know which type your employer offers.

Governmental 457(b) plans can allow both traditional pre-tax and designated Roth contributions. Nongovernmental 457(b) plans are different: They are generally limited to a select group of management or highly compensated employees, and the plan assets remain the employer’s property and can be available to its general creditors.

One of the most notable differences between a governmental 457(b) and many other retirement plans is its early-distribution treatment. Taxable distributions from a governmental 457(b) generally are not subject to the 10% additional early-distribution tax, regardless of age, although an exception applies to amounts attributable to money rolled into the 457(b) from another type of retirement plan or IRA. Ordinary income tax can still apply to traditional distributions.

403(b) vs. 457(b) Plans: Eligibility

The IRS allows certain employees to contribute to a 403(b) plan. Eligible participants include:

• Public school employees involved in daily school operations
• Employees of public school systems run by Indian tribal governments
• Employees of hospital service organizations
• Employees of 501(c)(3) tax-exempt or charitable organizations
• Certain ministers
• Civilian faculty and staff at the Uniformed Services University of the Health Sciences

Eligibility for a 457(b) depends on the employer and type of plan. State and local governments can sponsor governmental 457(b) plans, while qualifying tax-exempt organizations can sponsor nongovernmental 457(b) plans. Nongovernmental plans are generally limited to a select group of management or highly compensated employees rather than being broadly available to the workforce.

403(b) vs. 457(b) Plans: Contributions

You must consult with your employer to make contributions to your 403(b) plan. Because this plan allows you to invest pre-tax money from your wages, you must tell your employer the amount you want deferred and deposited into your 403(b) account. This process is sometimes called an elective deferral.

Through an elective deferral, you are designating a percentage or dollar amount of your paycheck for your 403(b) account. Traditional deferrals generally reduce current taxable income, while Roth deferrals are made after tax if your plan offers that option. Some employers also contribute to employees’ 403(b) accounts through matching or nonelective contributions.

For 2026, the employee elective-deferral limit for a 403(b) plan is $24,500. The general annual-additions limit, which includes employee deferrals and employer contributions, is generally the lesser of $72,000 or 100% of includible compensation.

The basic 2026 contribution limit for a 457(b) is also $24,500, but the mechanics are different: Employer and employee contributions generally count together toward the 457(b) limit.

Employees age 50 or older can make an $8,000 catch-up contribution in 2026 to a 403(b) or governmental 457(b) if the plan permits it. Participants who turn 60, 61, 62 or 63 during 2026 can instead qualify for the higher $11,250 SECURE 2.0 catch-up. Beginning in 2026, participants whose prior-year wages from the plan sponsor exceeded $150,000 generally must make catch-up contributions on a Roth basis if the plan offers catch-up contributions and has a Roth feature. ¹

A 457(b) may also offer a special catch-up during the final three taxable years before the plan’s normal retirement age. For 2026, this can potentially allow contributions up to $49,000, subject to the participant’s unused prior-year deferral room and plan rules. A governmental 457(b) participant generally cannot use this special three-year catch-up and the age-based catch-up in the same year; the plan uses the one that permits the larger contribution.

A 403(b) has a different special catch-up. If the plan permits it, certain employees with at least 15 years of service with the same qualifying employer may be able to contribute up to an additional $3,000. ² The actual amount is the smallest of $3,000, $15,000 reduced by prior use of this catch-up, or $5,000 multiplied by years of service minus prior elective deferrals.

403(b) vs. 457(b) Plans: Taxes

Traditional contributions to a 403(b) or governmental 457(b) are generally made pre-tax, and taxable withdrawals are included in ordinary income. If the employer plan offers a designated Roth option, contributions are made with after-tax dollars and qualified withdrawals can be tax-free. Roth contributions are permitted in 403(b) plans and governmental 457(b) plans, but not in nongovernmental 457(b) plans.

The early-distribution rules are also an important difference. Taxable 403(b) distributions before age 59 ½ can be subject to the 10% additional tax unless an exception applies. For example, an employee who separates from service during or after the year they turn 55 may qualify for an exception. This rule is part of the federal tax code and is not a temporary CARES Act provision.

Governmental 457(b) distributions generally are not subject to the 10% additional early-distribution tax, even if you are younger than 59 ½, although amounts rolled into the plan from another type of qualified plan or IRA can retain exposure to that additional tax.

Who Offers 403(b) and 457(b) Plans?

The IRS allows public-school systems, certain 501(c)(3) organizations, churches and certain other qualifying employers to establish 403(b) plans for eligible workers.

A 457(b) can be sponsored by a state or local government or certain tax-exempt organizations. Governmental 457(b) plans are generally available to eligible public-sector workers, while nongovernmental 457(b) plans are typically limited to a select group of management or highly compensated employees.

Some public employers offer both a 403(b) and a 457(b). If yours does, the 457(b) has a separate annual deferral limit from the 403(b), which can create substantially more tax-advantaged savings capacity than using either account alone.

Bottom Line

A 403(b) and a 457(b) can both provide tax-advantaged retirement savings, but the right account to prioritize depends on your employer and the plan terms. A 403(b) may offer employer contributions and has a special catch-up for certain workers with 15 years of service, while a governmental 457(b) generally offers more flexible early-withdrawal treatment and its own special catch-up near retirement. If your employer offers both plans, you may not have to choose just one. The 403(b) and 457(b) have separate annual deferral limits, potentially allowing you to save substantially more than either plan permits on its own. Comparing fees, investment choices, employer contributions, Roth options and when you expect to need the money can help you decide how to divide your contributions.

Retirement Planning Tips

• A financial advisor can help answer the questions you have when it comes to retirement planning. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Brainstorm and map out what you hope to financially accomplish before retirement. Make sure to research the different types of employer-sponsored accounts offered to determine whether you’re eligible. It’s likely that you are.
• After you’ve done the planning and research for your retirement savings goals, it’s important that you implement your enhanced financial awareness into your approach toward saving.

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