How a 403(b) and a 457(b) Work: Retirement Plans for Teachers, Non-Profits and Government

If you work for a public school, a university, a hospital, a charity or a state or local government, your workplace retirement plan is probably not a 401(k). It is a 403(b), a 457(b), or both. They work much like a 401(k), but each has a rule that a 401(k) does not have, and some employees can use both plans to save twice as much. This guide explains how each plan works, the 2026 limits, and how to use them together. All figures are for 2026.

The short version

How a 403(b) works

A 403(b) is the 401(k) of the non-profit world. You choose a percentage of each paycheck, the plan puts it in before you receive your pay, and you choose investments from the plan menu. Most plans have a pre-tax side and a Roth side. Many employers add a match.

Everything else is the same as a 401(k): the money grows untaxed, a withdrawal from the pre-tax side is ordinary income, there is a 10% additional tax before 59½ unless an exception applies (leaving your job at 55 or older is one), and minimum distributions start at 73. Read how a 401(k) works for the match, vesting and the choice between pre-tax and Roth.

What a 403(b) can hold

The law is narrower than for a 401(k). A 403(b) can hold only annuity contracts and mutual funds (or, in a church plan, a retirement income account). It cannot hold individual stocks or ETFs.

This matters because some 403(b) plans, especially in public schools, still offer mostly annuity products sold by insurance agents, with high fees and surrender charges. Before you pick your investments, look for the low-cost index funds on your plan menu, and compare the total yearly fees. A difference of 1% a year can cost you a large part of your savings over a career.

The 15-year catch-up

If you have worked 15 years or more for the same qualifying employer (such as a school district or a hospital), your plan may let you pay in up to $3,000 more a year, with a lifetime maximum of $15,000. This is on top of the age-50 catch-up. Not every plan offers it, so ask your plan administrator.

How a governmental 457(b) works

A 457(b) is a deferred compensation plan, mostly for employees of state and local governments: teachers in some states, police officers, firefighters, city and county staff. You pay in from your salary like in a 401(k), and many plans now have a Roth side too.

No 10% penalty before 59½

This is the rule that makes the 457(b) special. When you leave your job, you can take money out of a governmental 457(b) at any age, with no 10% additional tax. You pay ordinary income tax on the withdrawal, and that is all. The rule is in IRS Topic 558.

That makes a 457(b) very useful if you plan to retire early, or if you want a safety net for the years before 59½. One warning: money you roll into a 457(b) from a 401(k), a 403(b) or an IRA keeps its 10% rule.

The 3-year catch-up

In the three years before the normal retirement age set by your plan, you may be able to pay in up to twice the normal limit, if you did not use your full limit in earlier years. You cannot use this catch-up and the age-50 catch-up in the same year: you get the larger of the two.

A governmental plan, not a private one

Some private non-profit employers offer a non-governmental 457(b), often only to senior staff. It is a different product: the money stays the employer's until it is paid to you, so if the employer goes bankrupt, you can lose it. Your plan documents say which type you have. Everything in this article is about the governmental type.

The 2026 limits

From 2026, if your wages from that employer in the previous year were above the IRS threshold, your catch-up contributions must go to the Roth side. The figures come from the IRS announcement for 2026.

Save twice: a 403(b) and a 457(b) in the same year

The 403(b) limit is shared with any 401(k) you have. The 457(b) limit is not shared with anything. So if your employer offers both a 403(b) and a 457(b), which is common in school districts, public universities and public hospitals, you can fill both in the same year:

• $24,500 in the 403(b);
• $24,500 in the 457(b);
• a total of $49,000 of your own salary, before the catch-ups.

From 50, add $8,000 to each plan: $65,000 in total. On top of that, you can still pay into an IRA. Few other employees can shelter this much income.

Foreign withholding inside the plans

One cost the plans cannot remove: tax that a foreign country withholds on its dividends. The plans pay no US tax on that income, so they cannot claim a foreign tax credit, and that withholding is lost for good. Canada is the exception, because the US-Canada tax treaty exempts these retirement plans from Canadian withholding on dividends. Read more in what is dividend withholding tax.

Which one to fill first

If you have both plans, a common order:

1. The plan with an employer match, up to the full match (usually the 403(b)).
2. The 457(b), if you might retire or need money before 59½, because of its penalty-free access.
3. The rest of either plan, choosing the one with the lower fees and the better funds.
4. A Roth IRA or a traditional IRA, for more investment choice.

Track your 403(b) and 457(b) with the rest of your portfolio in Cadances

A teacher or a public employee often has a 403(b), a 457(b), a state pension, an IRA and maybe an old plan from another job, at different providers. Cadances is a portfolio tracker: it puts your investment accounts in one place and gives you one total, one allocation and one performance figure.

• An account type priced the way the law prices it. On the Portfolios screen, the 403(b) and the 457(b) are their own account types, next to the 401(k), the TSP, the IRAs and your taxable accounts. Dividends and gains inside them show as untaxed, so your income forecast is not cut by a tax you do not pay yet.
• The tax bill you are deferring, made visible. For US residents, the Tax screen shows the 2026 limit with the catch-up your age unlocks, and tells you that the 403(b) limit is shared with a 401(k) while the 457(b) limit is separate. It prices what a full withdrawal today would cost at your ordinary bracket. A governmental 457(b) shows its exit with no 10%. Past 73 it reminds you of the minimum distribution.
• All your providers in one place. Import the export file from your plan provider (TIAA, Fidelity, Empower, Voya or any other), or add your funds by hand. Each plan can be its own portfolio.
• Performance and allocation. On Performance, compare each plan with the S&P 500 over the window you pick, and see which one does better after its fees. Set allocation rules on each portfolio and see when your mix drifts away from your target.

Two limits to keep in mind: Cadances does not know your years of service or your plan's retirement age, so it does not compute the 15-year catch-up or the 3-year catch-up. And a state pension is not an investment portfolio, so it is not in Cadances.

Start free. Create your Cadances account: no card, no time limit. The Free plan holds one portfolio of up to 15 holdings, which is enough for one plan. To track your 403(b), your 457(b) and your IRAs side by side, compare the paid plans.

The bottom line

• A 403(b) is the 401(k) of schools, hospitals and non-profits; a governmental 457(b) is the plan of state and local governments.
• In 2026 each plan takes $24,500, plus the catch-ups.
• The 457(b) limit is separate, so with both plans you can save $49,000 a year, or more from 50.
• A governmental 457(b) has no 10% penalty when you leave your job, at any age.
• Check the fees in your 403(b), and prefer low-cost index funds.

Each paycheck you invest is dollar-cost averaging by design, and a diversified mix inside each plan matters as much as the amount you put in.

This article is general information, not tax or legal advice. Your plan documents hold the rules that apply to you.