403(b) vs. 457(b): The Retirement Plans for Teachers, Nurses, and Public Employees

Teachers, nurses, and public employees often have a retirement plan that looks like a 401(k) but isn't one. The 403(b) and the governmental 457(b) share the same headline limits with the 401(k), and each has a feature the 401(k) lacks. This is Part 3 of our Retirement Accounts Decoded series.

Who gets which plan

• 403(b). The IRS lists public school systems, hospitals, home health service agencies, health and welfare service agencies, and churches among the employers that can offer one.
• 457(b). Available to state and local governments and to certain tax-exempt organizations, according to the IRS. A plan from a government employer is called a governmental 457(b).

2026 limits

The 403(b) figures come from the IRS's 403(b) limits page and the 457(b) figures from its 457(b) page. Plan rules can be stricter than these maximums.

The 403(b) 15-year rule

If your plan permits it, an employee with at least 15 years of service with the same employer can raise their limit by the lesser of three amounts: $3,000; $15,000 minus the extra deferrals made in prior years under this rule; or $5,000 times years of service with the employer, minus the total elective deferrals made for earlier years, per the IRS. It's subject to a use test, a lifetime limit, and an annual limit, so it's a niche tool for long-tenured employees.

The 457(b) special catch-up

A governmental 457(b) has a catch-up that the 401(k) doesn't. During the last three taxable years before a participant's normal retirement age, the plan may allow contributions up to the lesser of twice the basic annual limit or the basic limit plus unused amounts from earlier years, per the IRS issue snapshot. You can't use it in the same year as the age-50 catch-up, and the age-50 catch-up is not available to tax-exempt (nongovernmental) 457(b) plans.

The early-withdrawal difference

Most retirement plans charge a 10% additional tax on withdrawals before age 59½. Per the IRS, distributions from a governmental 457(b) plan are not subject to that 10% additional tax, except for amounts rolled in from another type of plan or an IRA. Ordinary income tax still applies to the withdrawal, and the exception can be lost if you roll the money into an IRA, so weigh that before moving the account. We cover the 10% tax and its other exceptions in Part 6.

Common questions

What's the difference between a 403(b) and a 457(b)?

A 403(b) is offered by public schools, hospitals, churches, and similar employers. A 457(b) is offered by state and local governments and certain tax-exempt organizations. Both have a $24,500 deferral limit in 2026. The 403(b) has a 15-year rule, and the governmental 457(b) has a special three-year catch-up and no 10% early-withdrawal tax.

Can I have a 403(b) and a 457(b) at the same time?

Some employers offer both. Check with your plan administrator and the IRS limits pages for how the limits apply to your situation.

Is a 457(b) subject to the 10% early withdrawal penalty?

Not for a governmental 457(b). The IRS says distributions from a governmental 457(b) are not subject to the 10% additional tax, except for amounts attributable to rollovers from another type of plan or IRA. Regular income tax still applies.