403(b) and 457(b) Plans Explained: Retirement Savings Outside the 401(k)
If you work for a school, hospital, nonprofit or government agency, your workplace retirement plan is more likely a 403(b) or 457(b) than a 401(k). They share the basics but differ on who offers them, early-withdrawal rules, investment menus and how contribution limits stack. Here is how they work.
Most retirement explainers start with the 401(k). But if you teach at a public school, work at a hospital or nonprofit, or are employed by a city, county or state, your plan is more likely a 403(b) or a 457(b). They look similar from the paycheck side, yet they differ in ways that can matter for your investment choices, your flexibility before retirement and how much you can save in total.
This guide explains who gets each plan, how they compare with a 401(k), and what to check before choosing how much to put in. For the broader comparison with individual accounts, see 401(k) vs. IRA vs. Roth IRA.
The short version
| Feature | 403(b) | 457(b) |
|---|---|---|
| Who typically offers it | Public schools, colleges, 501(c)(3) nonprofits, hospitals, churches | State and local governments, and some tax-exempt organizations |
| Contribution type | Pre-tax, and Roth if the plan allows | Pre-tax, and Roth if the plan allows |
| Annual limit | Shared with 401(k) and similar plans | Separate limit |
| Early withdrawal tax | The 10% additional tax generally applies before 59½, with exceptions | Generally does not apply to governmental plans |
| Typical investments | Annuity contracts and mutual funds in custodial accounts | Varies by plan, often mutual funds |
Details vary by employer, so your plan's summary document is the final word.
How a 403(b) works
A 403(b), sometimes called a tax-sheltered annuity, is a workplace plan for employees of public schools, certain tax-exempt organizations and some religious groups. Like a 401(k), contributions come straight out of your paycheck. With a traditional pre-tax account, contributions reduce your taxable income now and withdrawals are taxed later. Plans may also offer Roth contributions, which are made with after-tax money and can be withdrawn tax-free in retirement if the rules are met.
Points worth knowing:
- Investment menu. 403(b) accounts have historically been limited to annuity contracts or custodial accounts holding mutual funds, rather than individual stocks. Menus vary, and some include low-cost index funds while others are heavy on higher-fee products.
- Fees. Because some 403(b) plans use annuity products, fees can be higher than in an average 401(k). Look at each investment's expense ratio and any surrender charges, wrap fees or administrative charges.
- Employer contributions. Some employers match or contribute. Ask whether there is vesting, which sets when employer money becomes yours. The 401(k) match and vesting explainer covers the concepts, which apply similarly here.
- Catch-up contributions. Workers aged 50 and over can generally contribute more, and some plans allow extra catch-up room for employees with long service at the same employer. See Catch-Up Contributions Explained for the general rules.
- Plan oversight. Plans run by private nonprofits are generally covered by federal ERISA rules, while public school and government plans are often exempt, which can affect protections and disclosures.
How a 457(b) works
A 457(b) is a deferred compensation plan offered by state and local governments and some non-governmental tax-exempt organizations. Contributions work much like a 403(b): pre-tax or, where allowed, Roth.
Two features stand out:
- A separate limit. The annual 457(b) limit generally sits apart from the one shared by 403(b) and 401(k) plans. An employee offered both a 403(b) and a 457(b) may be able to contribute to each, up to its own limit. Current limits are published each year by the IRS at irs.gov.
- Early access. Distributions from a governmental 457(b) are generally not hit with the 10% additional early-withdrawal tax that applies to many other plans. They are still taxable income, and you must usually have separated from service, with a few exceptions such as unforeseeable emergencies in plans that allow them. That flexibility is useful for people who may retire or leave public service before 59½, but it should not be taken as a reason to treat it as a savings account.
- Special catch-up. Some 457(b) plans allow a special catch-up in the years just before the plan's normal retirement age. Check whether your plan offers it, because it works differently from the age-50 catch-up.
Non-governmental 457(b) plans, such as those at some hospitals or nonprofit groups, can come with different rules, including how assets are held and how distributions are treated. Confirm which type you have.
Why people may have more than one plan
Public employees are sometimes offered a pension, a 403(b) and a 457(b) all at once. Because the 403(b) and 457(b) limits are generally separate, someone who wants to save aggressively can use both. If you are weighing priorities, a savings priority order explains how people commonly sequence employer match, plan type and tax treatment. Whether using both makes sense depends on your finances, your pension, fees and your timeline, which is a question for a licensed professional.
What to check in your plan
Pull your plan's summary plan description or enrollment materials and look for:
- Plan type. Is it a governmental or non-governmental 457(b)? A 403(b) or a 403(b)(7)?
- Match or employer contribution and any vesting schedule.
- Roth option. Does the plan accept Roth contributions?
- Investment options and costs. Expense ratios, annuity fees and surrender charges.
- Loan and hardship provisions. What access does the plan allow, and what does it cost?
- Rollover rules. Whether you can roll in old accounts and where your money can go if you leave.
- Number of providers. Some school districts allow several vendors, and fees differ widely among them.
The plan administrator or HR department can answer these, and plans must provide fee disclosures.
Changing jobs or retiring
Your options usually include leaving the money where it is, rolling it to a new employer plan that accepts rollovers, or rolling it into an IRA. A direct rollover, where the money moves from one plan to another without passing through your hands, generally avoids immediate tax. One point specific to 457(b) money: rolling a governmental 457(b) into an IRA can change how early-withdrawal rules apply, since the IRA is generally subject to the 10% additional tax before 59½. That is worth confirming before moving funds if you may need them early.
Required minimum distributions apply to these plans once you reach the applicable age, as they do for traditional 401(k)s and IRAs. Required Minimum Distributions Explained covers the ages and deadlines.
Common mistakes
- Assuming it is a 401(k). Fees, investment menus and withdrawal rules can differ.
- Ignoring the plan's costs. Small differences in annual fees compound over decades.
- Overlooking the 457(b) limit. Not knowing it exists leaves savings room unused for people who could use it.
- Cashing out on a job change. Taxes and, in many cases, penalties can take a large share.
- Missing the match. Free employer money is usually worth capturing before other priorities.
For official rules and current limits, the IRS publishes plan information at irs.gov, and the Department of Labor's Employee Benefits Security Administration covers participant rights and disclosures at dol.gov.
This article is for general information and education only and is not financial, investment, tax or legal advice. Consider your own circumstances and consult a licensed professional.
Frequently asked questions
Can I contribute to both a 403(b) and a 457(b)?
Often yes. The 457(b) has its own annual limit that is generally separate from the limit shared by 403(b) and 401(k) plans, so someone offered both can potentially save more in total. Eligibility depends on your employer's plans, so check the plan documents and the IRS limits published each year at irs.gov.
Are early withdrawals from a 457(b) penalized?
Distributions from a governmental 457(b) are generally not subject to the 10% additional early-withdrawal tax that applies to many other retirement plans, though they are still taxed as ordinary income unless they are Roth money meeting the rules. Rules for 457(b) plans at tax-exempt, non-governmental employers differ, so confirm the type of plan you have.
What happens to my 403(b) or 457(b) if I change jobs?
You can usually leave the money in the plan, roll it into a new employer's plan if it accepts rollovers, or roll it into an IRA. A direct rollover between retirement accounts generally avoids current tax. Cashing out can trigger income tax and, for many accounts, the early-withdrawal tax, so compare options first.
