What is the Difference Between 403b and 457?

The 403(b) and 457(b) are both employer-sponsored retirement plans designed for public-sector and nonprofit employees. While they share similarities, there are notable differences between the two:

1. Contribution Limits: In 2023, 457(b) plans allow a total contribution of $22,500, while 403(b) plans allow total contributions of $66,000, including $22,500 from an employee. For 2024, the employee 403(b) cap is $23,000, plus up to another $7,500 in catch-up contributions.
2. Employer Contributions: Employers may contribute to their employees' 403(b) and 457(b) accounts, but employer contributions are much less common than with 401(k) accounts. The 403(b) has a much higher limit than the 457(b), which lacks a separate contribution limit for employers.
3. Catch-up Contributions: Both plans allow special catch-up contributions. You may be able to contribute up to an additional $15,000 over five years to a 403(b) if you've worked for the same employer for at least 15 years. Meanwhile, you may be able to effectively double your annual contribution limits for 457(b)s during the three years leading up to retirement.
4. Early Withdrawals: Unlike 403(b) plans, which generally incur a 10% withdrawal penalty on any withdrawal made before 59½, 457(b) plans allow you to withdraw funds at any age, provided you have left the employer who offered the plan.
5. Loans: The UC 403(b) allows participants to take loans from their accounts if needed, while the 457(b) does not have this option.

If you are eligible for both plans, you can split your contributions between them. Consider each plan's contribution limits, catch-up contributions, employer contributions, investment options, and fees when deciding which plan to contribute to.

Comparative Table: 403b vs 457

Here is a table comparing the differences between 403(b) and 457(b) retirement plans:

Both 403(b) and 457(b) plans are employer-sponsored retirement savings plans offered to eligible public sector employees and nonprofit workers. They allow participants to save on a tax-deferred basis. However, there are significant differences regarding employer contributions, catch-up contributions, and withdrawal penalties. Employees can contribute to both plans, but they must keep the contribution limits and other rules in mind to avoid penalties.