403(b) Plans
403(b) & 457(b) Plans
Retirement plans designed for teachers, hospital employees, nonprofit workers, and state & local government employees.
The 403(b) Plan
A 403(b) plan, sometimes called a Tax-Sheltered Annuity (TSA), is the nonprofit and public education sector's equivalent of a 401(k). It is available to employees of:
Public schools and universities- Hospitals and healthcare organizations
- Churches and religious organizations
- 501(c)(3) nonprofit organizations
- Cooperative hospital service organizations
- State and local government entities
403(b) Contribution Limits (2025)
| Category | 2025 Limit |
|---|---|
| Employee Elective Deferral | $23,500 |
| Standard Catch-Up (Age 50+) | +$7,500 |
| Enhanced Catch-Up (Age 60–63, SECURE 2.0) | +$11,250 |
| 15-Year Special Catch-Up (long-term employees) | +$3,000/year (lifetime max $15,000) |
| Combined Employee + Employer | $70,000 |
The 15-Year Special Catch-Up is unique to 403(b) plans, eligible employees who have worked for the same qualifying organization for 15+ years may contribute an extra $3,000/year.
The 457(b) Plan: A Unique Second Retirement Account
The 457(b) is a deferred compensation plan available to state and local government employees and, in a limited form, to highly compensated employees at tax-exempt organizations. Its most powerful feature: it is a completely separate plan from a 403(b) or 401(k), allowing eligible participants to effectively double their retirement savings.
The Double Contribution Strategy
If you work for a government employer that offers BOTH a 403(b) and a 457(b), you can contribute the maximum to both — potentially sheltering up to $47,000 per year (or more with catch-up contributions) from current taxes. This is one of the most powerful retirement savings opportunities available to any American worker.
| Feature | Governmental 457(b) | Non-Governmental 457(b) |
|---|---|---|
| Who Qualifies | State & local government employees | Top-hat employees at nonprofits |
| 2025 Contribution Limit | $23,500 | $23,500 |
| Catch-Up (Age 50+) | +$7,500 | +$7,500 |
| Special 3-Year Catch-Up | Up to 2x the limit in final 3 years | Up to 2x the limit in final 3 years |
| Early Withdrawal Penalty | No 10% penalty, separation from service triggers access | No penalty, but subject to FICA upon vesting |
| Rollover Allowed | Yes, to IRA or other qualified plan | Cannot roll to IRA |
| Creditor Protection | Protected in a trust | Employer's general assets, at risk |
403(b) Investment Options: Know Your Choices
Historically, 403(b) plans were often limited to expensive annuity products sold by insurance companies. Since regulations changed, many plans now offer lower-cost mutual fund options. If your plan is heavy on annuities with high fees, it's worth reviewing your allocation, and potentially advocating for better options with your employer.
Maximize Your Public Sector Benefits
Many government and nonprofit employees leave significant retirement savings on the table. Randall Parker can help you build a strategy that maximizes your 403(b), 457(b), and pension benefits.
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