If you work for a tax-exempt organization under Internal Revenue Code Section 501(c), the 501(c) retirement plans available to you depend on your employer’s specific exempt status. A 501(c)(3) charity, hospital, university, or public school can offer a 403(b). State and local government employers and certain other tax-exempt organizations can offer a 457(b). Other 501(c) entities, such as a 501(c)(6) trade association or a 501(c)(4) social welfare organization, usually offer a 401(k) instead, because nothing in the tax code stops a tax-exempt employer from sponsoring one. Some larger nonprofits also layer in a 401(a) defined contribution plan funded entirely by the employer. If you’re unsure which plans you have access to, ask HR; the answer turns on your organization’s exempt subsection.
Which Plan Your Employer Can Offer
The 403(b) is restricted. Only 501(c)(3) organizations and public schools can sponsor one. A trade association or social welfare nonprofit cannot, no matter how large its workforce.
The 457(b) comes in two forms, and they behave very differently. Governmental 457(b) plans are sponsored by state and local government employers, including public schools and municipal hospitals, and are typically open to all employees. Non-governmental 457(b) plans are sponsored by private tax-exempt organizations and, by law, must be limited to a select group of management or highly compensated employees.1Internal Revenue Service. Non-governmental 457(b) Deferred Compensation Plans Rank-and-file staff at a private nonprofit cannot participate in a non-governmental 457(b).
How the 403(b) Works
The 403(b) is the primary retirement savings vehicle for employees of 501(c)(3) organizations and public schools. You may hear it called a “tax-sheltered annuity” or TSA, though your money doesn’t have to go into an annuity. A 403(b) account can hold an annuity contract through an insurance company, a custodial account invested in mutual funds, or a retirement income account set up specifically for church employees.2Internal Revenue Service. IRC 403(b) Tax-Sheltered Annuity Plans
Contributions mirror a 401(k). You can defer part of your salary pre-tax to lower your current taxable income, or make Roth contributions with after-tax dollars so qualified withdrawals in retirement are tax-free. Your employer can also add matching or non-elective contributions.
One rule sets the 403(b) apart. Under the universal availability requirement, if your employer lets any employee defer salary into the plan, it must offer the same opportunity to every employee and communicate that opportunity at least once a year.3Internal Revenue Service. Issue Snapshot – 403(b) Plan – The Universal Availability Requirement Limited exceptions apply for employees who normally work fewer than 20 hours per week, nonresident aliens, students performing certain services, and employees who would contribute $200 or less per year.4Internal Revenue Service. 403(b) Plan Fix-It Guide – You Didn’t Give All Employees of the Organization the Opportunity to Make a Salary Deferral Because of universal availability, 403(b) plans skip the nondiscrimination testing on elective deferrals that most 401(k) plans must pass.
How the 457(b) Works
A 457(b) is a deferred compensation plan whose contribution limits sit entirely separate from the 403(b) and 401(k) limits. That separation is the plan’s biggest planning advantage, and we’ll come back to it. The daily mechanics depend on whether the plan is governmental.
Governmental 457(b)
Governmental 457(b) plans look much like a 401(k) in practice. Your contributions go into a trust, you pick from a menu of investments, and the money is protected from your employer’s creditors.
The standout feature shows up when you leave the job. Distributions from a governmental 457(b) after separation from service are not subject to the 10% federal early withdrawal penalty, regardless of your age.5Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions If you retire at 52 and tap the account, you’ll pay regular income tax but no penalty, which would otherwise apply to a 403(b) or 401(k) withdrawal before age 59½. For an early retirement, that’s a real liquidity advantage.
Non-Governmental 457(b)
Non-governmental 457(b) plans carry two features that change the risk picture. First, participation is restricted by law to a select group of management or highly compensated employees. There is no bright-line rule for who qualifies as “select,” but regulators and courts look at coverage levels and salary comparisons relative to the broader workforce.
Second, the plan is unfunded. Assets must remain the property of the employer and are available to the employer’s general creditors if the organization is sued or files bankruptcy.1Internal Revenue Service. Non-governmental 457(b) Deferred Compensation Plans Many plans use a “rabbi trust” to hold the money, but that trust does not shield the funds from creditors. If the employer goes under, participants sit lower in priority than general creditors. That is a fundamentally different risk than the trust-protected assets in a 403(b) or governmental 457(b), and it’s the trade-off for the tax deferral.
Rollover options are also narrower, which we cover below.
Stacking a 403(b) and a 457(b)
If you have access to both a 403(b) and a governmental 457(b), the biggest tax planning opportunity is that their contribution limits do not share a pool. Each plan has its own separate deferral limit, so you can effectively double your annual elective deferrals.6Internal Revenue Service. Retirement Topics – Contributions
For 2026, the standard elective deferral limit for both a 403(b) and a governmental 457(b) is $24,500.7Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 That ceiling covers your pre-tax and Roth contributions combined, per plan. Participating in both means you can defer up to $49,000 in a single year before counting any catch-up contributions.
Catch-Up Contributions After 50
Several catch-up provisions let older employees contribute above the standard limit. The rules differ by plan.
Age 50 and Age 60 to 63
Employees age 50 and older can add $8,000 in 2026, raising the per-plan ceiling to $32,500. Under the SECURE 2.0 Act, participants who are ages 60 through 63 during the year get an enhanced catch-up of $11,250, for a per-plan ceiling of $35,750.7Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 These apply to 403(b) and governmental 457(b) plans. Non-governmental 457(b) plans do not permit any age-based catch-up contributions.
15-Year Catch-Up (403(b) Only)
The 403(b) has a catch-up no other plan type offers. If you have worked at least 15 years for the same qualifying employer, such as a public school, hospital, or church, you may contribute up to $3,000 extra per year above the standard deferral limit, capped at $15,000 in lifetime additional deferrals.8Internal Revenue Service. 403(b) Plan Fix-It Guide – An Employee Making a 15-Years of Service Catch-Up Contribution Doesn’t Have the Required 15 Years of Full-Time Service With the Same Employer
The calculation is not simple. Your additional deferral in any year is the smallest of three amounts: $3,000; $15,000 minus total 15-year catch-up contributions you’ve made in prior years; and $5,000 times your years of service minus all elective deferrals you’ve made over your career with that employer.9Internal Revenue Service. 403(b) Plans – Catch-up Contributions That third prong trips people up. Steady contributions over 20 years can leave little or no unused room, even once you’ve cleared the 15-year service test. When you qualify for both the 15-year and the age 50 catch-up in the same year, IRS ordering rules apply the 15-year amount first.
Special Three-Year Catch-Up (457(b))
The 457(b) has its own enhanced catch-up for the three tax years immediately before the year you reach the plan’s Normal Retirement Age. That age is defined in your plan document, typically 65 or the age at which you qualify for full pension benefits, but it cannot exceed 70½.10Internal Revenue Service. Issue Snapshot – Section 457(b) Plan of Governmental and Tax-Exempt Employers – Catch-Up Contributions
During those three years you can contribute up to twice the standard limit, $49,000 in 2026. The catch: this doubled amount is only available to the extent you underutilized your limits in prior years with the same employer. If you maxed out every year, there’s nothing extra to use. If you’re eligible for both the age 50 (or 60–63) catch-up and the special three-year catch-up in the same year, you take whichever produces the higher amount, not both.
Getting Your Money Out
Hardship Withdrawals
A 403(b) may allow hardship withdrawals if the plan document permits them. Your employer is not required to offer this feature. If available, you must show an immediate and heavy financial need. The IRS recognizes several safe harbor reasons that automatically qualify:
- Unreimbursed medical expenses for you, your spouse, dependents, or beneficiary
- Costs directly related to buying your primary residence, not ongoing mortgage payments
- Tuition, fees, and room and board for the next 12 months of postsecondary education for you or a family member
- Payments needed to prevent eviction or foreclosure on your primary residence
- Funeral or burial costs for you, your spouse, children, dependents, or beneficiary
- Certain expenses to repair damage to your primary residence
Hardship withdrawals are taxed as ordinary income and cannot be rolled into another retirement account.11Internal Revenue Service. Retirement Topics – Hardship Distributions If you’re under 59½, the 10% early withdrawal penalty applies on top of regular tax.
Plan Loans
Many 403(b) and governmental 457(b) plans let you borrow from your account. The maximum is the lesser of 50% of your vested balance or $50,000, with an exception allowing loans up to $10,000 even if that exceeds 50% of the balance.12Internal Revenue Service. 403(b) Plan Fix-It Guide – You Haven’t Limited Loan Amounts and Enforced Repayments as Required Under IRC Section 72(p) Loans generally must be repaid within five years through substantially level payments at least quarterly, with longer terms allowed for a loan used to buy your primary residence. A loan that isn’t repaid on schedule is treated as a taxable distribution.
Rollovers
When you leave your employer, most pre-retirement distributions from a 403(b) or governmental 457(b) can be rolled over to an IRA, another 403(b), a 401(k), or another governmental 457(b).13Internal Revenue Service. Rollover Chart A direct rollover avoids the 20% mandatory withholding that applies when you receive the distribution yourself and try to redeposit it within 60 days.14Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions Hardship distributions, required minimum distributions, and certain periodic payments cannot be rolled over.
Non-governmental 457(b) plans are the exception. Because those assets belong to the employer until distributed, funds in a non-governmental 457(b) generally cannot be rolled over to an IRA or another retirement account. Your distribution options are more limited, and timing matters, because the full payout is taxed as ordinary income in the year you receive it.
Required Minimum Distributions
You generally must start taking required minimum distributions from your 403(b) or 457(b) by April 1 following the later of the year you turn 73 or the year you retire, if your plan allows the delay for employees who are still working.15Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs) A missed RMD triggers a steep excise tax, so this is a deadline worth tracking as you approach your 70s.
SECURE 2.0 Changes to Watch
The SECURE 2.0 Act, signed into law in December 2022, phased in several provisions that affect 403(b) and 457(b) participants.
Mandatory Roth Catch-Up for Higher Earners
Starting with tax years beginning in 2027, catch-up contributions for employees who earned more than a specified wage threshold in the prior year must be designated as Roth contributions. Plans may adopt the rule earlier on a voluntary basis.16Internal Revenue Service. Treasury, IRS Issue Final Regulations on New Roth Catch-Up Rule, Other SECURE 2.0 Act Provisions The base threshold is $145,000, indexed for inflation, measured by FICA wages from the sponsoring employer in the preceding calendar year. The rule applies to 401(k), 403(b), and governmental 457(b) plans. If you earn above the threshold, your catch-up dollars go in after-tax, with tax-free qualified withdrawals on the back end.
Automatic Enrollment for New 403(b) Plans
SECURE 2.0 requires automatic enrollment for new 403(b) plans established after December 29, 2022. Auto-enrolled employees must start between 3% and 10% of pay, with the rate increasing by 1% each year to at least 10% but no more than 15%. Church plans, governmental plans, and plans maintained by employers with 10 or fewer employees are exempt. Plans established before the law’s enactment are grandfathered.
This auto-enrollment mandate intersects with the ERISA safe harbor many private 403(b) plans have relied on, which required participation to be entirely voluntary. A 501(c)(3) employer that establishes a new 403(b) with auto-enrollment cannot claim that safe harbor and will be subject to ERISA’s full fiduciary and reporting requirements.17Congress.gov. 403(b) Pension Plans Overview and Legislative Developments For employees, that generally means stronger fiduciary protections around how the plan is run.