Two popular saving options for public sector employees are the 457(b) and 403(b). But what’s the difference between these plans? And how do you decide which one is right for your situation?
Overview
This post will break down the 457(b) and 403(b) in a simple way so you can make the best choice for your retirement savings needs. We’ll look at:
- Who can participate
- How much you can contribute
- When you can access the money
- Investment options
- Portability if you change jobs
- Employer matching contributions
- And more!
Who’s Eligible for These Plans?
457(b) Plan Eligibility
The 457(b) is designed for certain government and nonprofit employees. Common 457(b)-eligible jobs include:
- Police officers
- Firefighters
- Teachers
- Judges
- City council members
- Nonprofit organization employees
The only requirement is that you have to work for an employer who offers the 457(b) plan. There are no minimum hour rules or age limits.
403(b) Plan Eligibility
The 403(b) is typically offered by public schools and some nonprofit organizations. Typical 403(b)-eligible employees are:
- Teachers
- Professors
- Librarians
- Nurses
- Doctors
- Ministers
- Church employees
Like the 457(b), you just have to work for a participating employer.
How Much Money Can You Contribute?
457(b) Contribution Limit
For 2023, the max contribution to a 457(b) is $22,000 if you’re under age 50. If you’re 50 or older, you get a $7,500 “catch-up” contribution for a total limit of $29,500.
403(b) Contribution Limit
The 403(b) has the same limits as the 457(b) plan.
Accessing Your Money Early: What Are the Rules?
457(b) Withdrawal Rules
A perk of the 457(b) is you can access your money penalty-free as soon as you leave your job, regardless of age.
403(b) Withdrawal Rules
The 403(b) follows similar rules as a 401(k) for early withdrawals. You must reach age 59.5 or separate from service after age 55 to avoid penalties.
Comparing Investment Options
457(b) Investment Options
Investment choices depend on what your employer offers, ranging from stable value funds to stock index funds.
403(b) Investment Options
While 403(b)s were once annuity-focused, they now offer more flexibility with mutual funds and ETFs.
Portability If You Change Jobs
Both the 457(b) and 403(b) plans are fully portable. You can roll over your funds into other qualified retirement accounts, like a 401(k) or IRA.
Does Your Employer Provide Matching Contributions?
457(b) Matching
Some government and nonprofit employers match contributions, usually up to 6% of your salary.
403(b) Matching
403(b) matches are common, especially in larger nonprofits and educational institutions.
Which Plan is Best for You?
Here’s a quick breakdown of which plan might suit you based on flexibility, investment options, and your proximity to retirement.
