403(b) and 457(b) Plans in 2026: The Retirement Accounts for Teachers, Nurses, and Public Workers

Your Retirement Plan Is Probably Not a 401(k)

Most retirement advice you read is about the 401(k). But if you teach in a public school, work at a nonprofit, care for patients at a hospital, or have a job with a state or local government, your plan is different. You almost certainly have a 403(b), a 457(b), or both. These are the retirement accounts for the public and nonprofit world. In 2020, 403(b) plans alone held more than $1.1 trillion in savings.[22]

These plans matter because they are how millions of teachers, nurses, social workers, professors, and civil servants build their nest egg. They work a lot like a 401(k), but they carry a few special rules that can put thousands of extra dollars in your pocket — if you know them. The biggest one: many public workers can use a 403(b) and a 457(b) in the same year, each with its own contribution limit. Most people never hear this.[12]

What Is a 403(b) Plan?

A 403(b), also called a "tax-sheltered annuity" or TSA, is a retirement plan for employees of public schools and certain 501(c)(3) tax-exempt organizations. According to the IRS, that includes public school teachers, college and university staff, hospital and charity workers, and church employees. Money you put in comes straight out of your paycheck before taxes (or as after-tax Roth), and it grows without yearly tax on the gains.[9, 16]

A 403(b) can hold your money in one of two ways: an annuity contract from an insurance company, or a custodial account invested in mutual funds. This choice matters a lot for fees, and we cover the trap later. The key point for now: a 403(b) is your main tax-advantaged way to save for retirement at a school or nonprofit, and starting early is what makes it powerful.[9]

What Is a 457(b) Plan?

A 457(b) is a "deferred compensation" plan. The IRS allows two kinds of employers to offer one: a state or local government, or a tax-exempt organization under Section 501(c). Like a 403(b), you defer part of your paycheck into the account and skip the tax until later (or choose Roth). If you work for a city, county, state, school district, or public university, a 457(b) may sit right next to your 403(b).[10]

There is one split you need to know from the start: a 457(b) is either governmental (offered by a state or local government) or non-governmental (offered by a tax-exempt employer, like a private nonprofit hospital). They look similar but follow very different safety rules, and we explain that gap in detail below. The governmental version is the common one for teachers and public employees, and it is the friendlier of the two.[10, 11]

How Much You Can Contribute in 2026

For 2026, the IRS raised the basic limit. You can defer up to $24,500 of your own pay into a 403(b), and a separate $24,500 into a 457(b). These numbers come from IRS Notice 2025-67, which lifted the limit from $23,500 in 2025. The same $24,500 cap applies to 401(k) plans and the federal Thrift Savings Plan.[1, 2]

There is also a bigger, less-known ceiling. The overall 2026 limit on everything that can go into your 403(b) — your deferrals plus any employer contributions — is $72,000 (or 100% of your pay, if lower). Most workers never reach this, but it matters if your employer adds a match or a big contribution. And a 403(b) or 457(b) does not use up your IRA space: you can still put up to $7,500 into an IRA in 2026 on top.[3, 4]

Catch-Up Contributions: Four Ways to Add More

Once you turn 50, you can add a catch-up on top of the basic limit. For 2026 that age-50 catch-up is $8,000, in a 401(k), 403(b), or governmental 457(b). Thanks to the SECURE 2.0 Act, there is now an even higher "super catch-up" for the years you are age 60, 61, 62, or 63: $11,250 for 2026, instead of $8,000. It drops back to the normal catch-up the year you turn 64.[5, 1]

The 403(b) has its own bonus. Under the 15-year rule in IRS Publication 571, if you have 15 or more years of service with the same qualifying employer (a school, hospital, church, or similar), you may add up to $3,000 a year, capped at $15,000 over your lifetime. With this rule, a 403(b) saver can defer as much as $27,500 in 2026. The 15-year rule is applied first, then the age-50 catch-up on top.[8, 6]

The 457(b) has the most powerful catch-up of all. In the last three years before your plan’s normal retirement age, you may contribute up to twice the annual limit — as much as $49,000 in 2026 — to make up for years you under-saved. One catch: you cannot use both the special 457 catch-up and the age-50 catch-up in the same year. The plan uses whichever one gives you the larger amount.[7, 8]

The Big Move: Use a 403(b) and a 457(b) Together

Here is the trick that most public workers miss. The IRS says the 457(b) limit is separate and "is not combined with your deferrals made to a 403(b) or other plans." So if your employer offers both, you can max out each one in the same year. In 2026 that is $24,500 in the 403(b) plus $24,500 in the 457(b) — a total of $49,000 of tax-advantaged saving, before any catch-up.[12]

Be careful about one thing. A 403(b) and a 401(k) do share a single limit — if you somehow had both, your combined deferrals still cap at $24,500. It is the 457(b) that stands apart. So the doubling trick works specifically with a 457(b) next to your 403(b) (or 401(k)). If you can only afford to fund one first, a smart order is to grab any employer match, then weigh the 457(b) for its early-access perk, which we cover next.[12]

The 457(b) Superpower: No Early-Withdrawal Penalty

Most retirement accounts punish you for taking money out before age 59½ with a 10% penalty on top of income tax. A governmental 457(b) does not. The IRS states plainly that distributions from a governmental 457(b) plan "are not subject to the 10% additional tax." If you retire early, change careers, or leave public service before 59½, you can tap your 457(b) and only owe regular income tax — no penalty.[13]

There is one exception to remember. If you roll money into a 457(b) from a 401(k), 403(b), or IRA, that rolled-in money keeps its 10% early-withdrawal penalty. The no-penalty perk only covers the dollars that were originally contributed to the 457(b) itself. This makes a 457(b) a flexible "bridge" account for anyone thinking about leaving work before the usual retirement age.[13]

Governmental vs. Non-Governmental 457(b): A Risk You Must Know

If your 457(b) comes from a private nonprofit (a "non-governmental" plan), the safety rules change in a big way. The IRS explains that in these plans, "plan assets are not held in trust for employees but remain the property of the employer (available to its general creditors)." In plain English: if your employer goes bankrupt, your savings can be taken by the company’s creditors. Your money is not fully your own until it is paid out.[11]

Non-governmental 457(b) plans are also limited to a "select group of management or highly compensated employees" — a so-called top-hat plan — and the employer must file a short notice with the U.S. Department of Labor. These plans do not allow the age-50 catch-up (only the special last-3-years catch-up), and you generally cannot roll the balance into an IRA when you leave. A governmental 457(b), by contrast, holds your money in trust for you, allows the age-50 catch-up, and can be rolled over. Know which type you have before you lean on it.[11, 10]

Roth or Pre-Tax? Plus a New 2026 Rule for High Earners

Most 403(b) and governmental 457(b) plans let you choose between two flavors. Pre-tax contributions lower your taxable income now, and you pay tax when you withdraw in retirement. Roth contributions are made with money you already paid tax on, and qualified withdrawals later are tax-free. The IRS notes a big advantage over a Roth IRA: designated Roth accounts in these plans have "no limits on your income," so even high earners can use them.[14]

Starting in 2026, high earners lose the choice for their catch-up money. Under a SECURE 2.0 rule finalized in September 2025, if your prior-year wages from that employer topped $150,000, your age-50 catch-up must go in as Roth. The final regulations apply this to 401(k), 403(b), and governmental 457(b) plans. The wage figure is your Social Security wages (Box 3 of your W-2). One relief: the special 457(b) last-3-years catch-up may always stay pre-tax.[18, 17]

Watch the Fees, Especially in a 403(b) Annuity

A 403(b) has a hidden weakness: fees. Because many 403(b) plans are built around insurance-company annuities, they can be expensive and confusing. A government report (GAO-22-104439) found 403(b) record-keeping fees ranging from 0.0008% to 2.01% of assets, and investment fees from 0.01% all the way to 2.37%. It also found 403(b) plans often offer more, and more complicated, choices than a typical private 401(k). Small fee differences quietly cost you tens of thousands of dollars over a career.[22, 23]

Be careful with variable annuities inside a 403(b). The SEC warns that if you buy a variable annuity inside a tax-advantaged plan, "you will get no additional tax advantage from the variable annuity" — you are paying extra for a tax break you already have. FINRA adds that these products are "complex and can be costly," with surrender periods of eight years or more and annual expenses "much higher than the expenses of a typical mutual fund."[19, 20, 21]

The fix is usually simple. Look through your plan’s list of providers for a low-cost custodial account with index mutual funds instead of an annuity, and compare each option’s "expense ratio" — the yearly fee. Aiming for funds under about 0.20% a year, rather than 1% or 2%, is one of the highest-return moves you can make with zero extra risk.[22]

What Happens When You Change Jobs

When you leave, your money stays yours. You can usually keep the account where it is, or roll it over. A governmental 457(b), a 403(b), and a 401(k) can all be rolled into an IRA or a new employer’s plan. The IRS gives you 60 days to complete a rollover, but a check paid directly to you triggers a mandatory 20% withholding. A "direct rollover," where the money moves straight between accounts, avoids that withholding — it is the safer route.[15]

The exception, once again, is the non-governmental 457(b). Because that money technically still belongs to your former employer until paid, you usually cannot roll it into an IRA. Instead the plan pays you out on a schedule you often must choose before you leave, and the whole balance becomes taxable income on that timetable. If you have this type of plan, read your distribution options carefully well before your last day.[11]

How to Get Started, Step by Step

Getting into these plans is easier than it looks. First, ask your HR or benefits office for the plan’s list of approved vendors — 403(b) and 457(b) plans often let you choose among several providers. Second, inside that list, pick a low-cost custodial account with index funds and skip the pricey annuities. Third, decide how much to contribute, and whether pre-tax or Roth fits your tax picture. If you are unsure where to start, even 1% of your pay, raised a little each year, builds real momentum.[9]

Frequently Asked Questions About 403(b) and 457(b) Plans

Key Takeaways

If you work in a school, a nonprofit, a hospital, or government, your 403(b) and 457(b) are powerful tools that too few people use fully. For 2026 you can defer up to $24,500 into each, and because the 457(b) limit is separate, many public workers can save up to $49,000 across both before catch-ups. Add the age-50, super, 15-year, and special 457(b) catch-ups, and the numbers climb higher still. Choose low-cost funds over pricey annuities, know whether your 457(b) is governmental or not, and start as early as you can — time is the biggest advantage you have. As always, this is general education, not personal financial or tax advice; check your own plan documents and consider talking to a qualified professional.