403(b) vs. 457(b): The Differences And How To Spend Efficiently

Shawn Plummer

CEO, The Annuity Expert

This guide will discuss the key differences between a 457(b) and a 403(b) retirement savings plan. Employees from:

  • Public schools
  • State and local government
  • Nurses
  • Charities and nonprofit organizations
  • Churches and religious organizations
  • Nonprofit private schools
  • University employees

will understand the retirement benefits provided them with one of these three plans.

At the end of this post, participants will also learn how to spend their retirement savings efficiently.

457 Plan

A 457 plan is offered to state and local governments and top-level nonprofit employees. There are two types of these tax-advantaged retirement plans:

  • 457(b) for state and local government employees
  • 457(f) for C-level executives of nonprofits.


For a 457(b) plan, you can contribute up to $20,500 in 2022 and $22,500 in 2023. You may also contribute an additional $7,500 in 2023 if you’re 50 or older.

Source: Internal Revenue Service


The 457(f) plan differs from the 457(b) plan. They are tied to how long you work and other performance-based metrics.

  • They are primarily used to recruit executives from the private sector.
  • The compensation plan is deferred from taxation.
  • The deferred compensation must be subject to a “substantial risk of forfeiture,” which means the executive is at risk of losing the benefit if they fail to meet the service duration or performance requirements.
  • Once the 457(f) plan becomes guaranteed and no longer subject to the risk of forfeiture, it becomes taxable as gross income.

Deferred compensation is not paid to the executive and sheltered from taxation until the services have been performed for at least two consecutive years.

Amounts deferred are subject to the risk of forfeiture, but there’s no limit on how much income can be deferred.

457 Plan Pros

  • You can pay an extra $7,500 annually if you’re at least 50 years old.
  • Unlike other retirement plans, your 457(b) benefits become available to you without penalties when you no longer work for the employer, even if you are younger than 59½ years old.
  • When you leave your job, you can roll over your account into an IRA, 401(k), or IRA annuity. This option is only for the 457(b) plan, not the 457(f) plan.

457 Plan Cons

  • Employer contributions count as part of your annual maximum contribution.
  • Limited governments provide matching programs within the 457(b) plan. Employees have the responsibility to save enough to meet their own needs.

The 457(f) requires that employees work for two years before being eligible for this plan. If the executive leaves the company before their time is up, they forfeit any rights to the 457(f) plan.

403(b) Plan

A 403(b) plan is offered to tax-exempt organizations, nonprofits, and public school employees. This retirement account allows participants to set aside money tax-deferred for retirement.

These plans were introduced in 1958, and they have only been able to invest in annuity contracts known as a tax-sheltered annuity (TSA) or tax-deferred annuity (TDA) plans.

Helpful Tool: 403(b) Calculator

Contribution and Elective Deferral Limit

The contribution limits for 403(b) plans are the same as those of 401(k) plans. However, employee deferrals to a 403b plan are made before taxes so that they will reduce your adjusted gross income.

For 2023, the annual contribution limit is $22,500 and $20,500 in 2022. The special catch-up contribution for workers aged 50 and over is $7,500.

403(b) plans offer a special additional catch-up contribution provision known as the lifetime catch-up provision or 15-year rule. Employees who have at least 15 years of tenure are eligible for this provision, which allows for an extra $3,000 payment a year.

Employers can match additional contributions, but the total contributions from employer and employee cannot exceed $66,000 for 2023 and $61,000 in 2022.

Employers can opt for after-tax contributions and Roth contributions. Automatic contributions are one of the benefits that 403(b) plans provide, but employers may opt out at their discretion. Participants of eligible plan types may qualify for tax breaks as well.

For 403(b) contributions to an individual, the IRS applies them in a specific order:

  • elective deferral
  • service catch-up provision (15 years)
  • age 50 catch-up contribution

403(b) Rollovers

Employees who leave their employers can take their plans to other employers. They may roll their balances over into another 403(b), a 401(k), an annuity, or in some cases, a self-directed IRA.

One significant benefit of a 403(b) plan is that it can be carried over from one job to the next rather than being left behind at a previous employer.

403(b) Distributions

All distributions are reported to the IRS on Form 1099-R and mailed to plan participants.

Limited Investing Options

Depending on the investment provider, investment options in a 403(b) plan are limited. Funds can be invested into an annuity or mutual funds via custodial accounts.

Helpful Tool: 403b investment calculator

How to spend a 457 plan efficiently in retirement

Employees can’t touch their 457 plans until they’ve left their employer. However, after leaving, a 457 plan owner can roll over their retirement accounts into a deferred annuity with a lifetime income rider. The annuity will then equally distribute a percentage of the retirement account for the rest of the retiree’s or married retirees’ lifetimes, even after the account has run out of money.

How to spend a 403(b) plan efficiently in retirement

Employees can’t touch their 403(b) plans without a tax penalty until they’ve reached the age of 59½ years. At that time, a 403(b) plan owner can roll over their retirement savings plans into a deferred annuity with a lifetime income rider. The annuity will then equally distribute a percentage of the retirement account for the rest of the retiree’s or married retirees’ lifetimes, even after the account has run out of money.

403(B) Vs. 457(B): The Differences And How To Spend Efficiently

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Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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