457(b) vs. 403(b) Plans: Benefits & Differences
While many plan sponsors offer them in conjunction, there are key differences between 457(b) plans and 403(b) plans. Below, we cover the basics of each plan, look at the differences, and explore the benefits of each.
457(b) Plan vs. 403(b) Plan Comparison Chart
Below, we compare contribution limits for 457(b) plans and 403(b) plans for 2022.
| 457(b) plans | 403(B) plans | |
|---|---|---|
| Maximum Annual Deferral | $23,000 | $23,000 |
| "Age 50 Catch-Up" Limit | $7,500 | $7,500 |
| "Pre-Retirement Catch-Up" Limit | $23,000 | $15,000 lifetime cap, known as "special catch-up" |
The Benefits of 403(b) and 457(b) Plans
Both 457(b) plans and 403(b) plans enable participants to contribute pre-tax dollars to a retirement account, which then grows tax-deferred. When participants retire and begin withdrawing funds, they are taxed as ordinary income.
Both 457(b) and 403(b) retirement plans are offered to public service workers but 403(b) plans are also available at some not-for-profit institutions such as private K-12 schools or private colleges.
What is the Difference Between a 403(b) and a 457(b) Plan?
While 457(b) plans and 403(b) plans offer the same tax-deferred benefits, there are some differences.
Early Withdrawals
One key difference is in the way withdrawals are handled. Unlike any other plan, 457(b) plans allow you to withdraw funds at any age, provided you have left the employer who offered the plan.
In other words, if you’ve made contributions to a 457(b) plan from a previous employer, you can withdraw them at any time without paying an early-withdrawal penalty. 403(b) plans, by contrast, generally incur a 10% withdrawal penalty on any withdrawal made before 59½.
Catch-Up Contributions
Both 457(b) plans and 403(b) plans have an "Age 50 Catch-Up" option. Under this option, both plans allow extra contributions from age 50 onwards.
However, the plans also have different rules for "Pre-Retirement Catch-Up" contributions.
In addition to the "Age 50" catch-up option, 457(b) plans also allow "Pre-Retirement Catch-Up" contributions, even before age 50. This means that in the three years before your normal retirement age you can make additional contributions that can potentially double the amount you contribute in a single year, subject to certain limitations.
Learn more about our 457(b) catch-ups, including a detailed example.
Catch-up provisions in 403(b) plans are different. No matter your age, if you have 15 or more years of service with an eligible employer, you may make additional catch-up contributions of as much as $3,000 a year; and capped at a total of $15,000 across your lifetime.
To give an example, someone age 45 could begin making catch-up contributions to a 403(b) on top of their ordinary contributions provided they had been at the organization for at least 15 years.
Investment Options
Both 403(b) and 457(b) plans allow the account holder to choose from a selection of options set by their employer. These may include more conservative stable-value investments to more aggressive bond and stock funds. You may choose to build a diversified portfolio of various funds, select a simple yet diversified target-date or target-risk fund, or rely on specific investment advice through our Guided Pathways® Advisory Services.
Offering a 403(b) and 457(b) Plan Together
Some employers offer both a 457(b) plan and a 403(b) plan. In this situation, you can make tax-deferred contributions – up to the annual deferral maximum – for both accounts. The plans are treated separately: Contributions to one plan do not affect the other plan.
Employers may wish to offer both plans to give their employees greater opportunities to save for their retirement. In 2024, for example, someone with access to both a 457(b) plan and a 403(b) plan could contribute up to $46,000: $23,000 from their 457(b) plan and $23,000 from their 403(b) plan.
403(b) vs. 457(b): Which is Better for Participants?
Each plan features certain advantages. For example, there isn’t an early-withdrawal penalty with a 457 plan once you leave the employer sponsoring the plan; and a 457 also offers more generous catch-up contributions than a 403(b) plan in the three years before retirement. On the other hand, you can start making catch-up contributions to your 403(b) plan at a much younger age than with your 457(b) plan.
Choosing between a 403(b) plan or a 457(b) plan will depend on your retirement goals. If you have access to both, you may want to consider contributing to both accounts if your situation allows.
Start a Plan – Plan Sponsors
If you'd like to discuss how MissionSquare would manage your employees’ 457(b) plan or 403(b) plan, contact us.
Enroll in a Plan – Employees
If you’d like to discuss with MissionSquare how to enroll in your retirement plan, contact us.