403(b) vs. 457(b): Limits, Withdrawals, and Rollovers

The difference between a 403(b) and a 457(b) comes down to five things: who can sponsor the plan, whether the contribution limits stack with other retirement plans, whether early withdrawals get hit with a 10% penalty, how hardship access works, and whether your money is legally shielded from your employer’s creditors. Both plans let you defer $24,500 in 2026, and if your employer offers both, you can contribute the full amount to each one separately.¹

Who Sponsors Each Plan

A 403(b) can only be established by a public educational institution or an organization that qualifies as tax-exempt under Section 501(c)(3). Think public schools, state colleges and universities, hospitals, charitable nonprofits, and churches.²

The 457(b) world splits into two categories that behave very differently. Governmental 457(b) plans are sponsored by state and local governments and their agencies, including municipalities, public school districts, and state universities. Non-governmental 457(b) plans are offered by tax-exempt nonprofits, but only to a select group of management or highly compensated employees.³ That restricted eligibility exists because non-governmental 457(b) assets carry a serious creditor risk covered further down.

The overlap matters. Public university employees often have access to both a 403(b) and a governmental 457(b) through the same employer, and that dual access unlocks contribution room most private-sector workers never see. A governmental 457(b) can also cover independent contractors who provide services to the sponsoring entity, while a 403(b) is limited to employees.⁴

2026 Contribution Limits

The standard employee deferral limit is $24,500 for both the 403(b) and the governmental 457(b) in 2026.⁵ If you’re 50 or older, you can add another $8,000 in catch-up contributions, bringing your ceiling to $32,500 per plan.¹

SECURE 2.0 introduced an enhanced catch-up for participants who turn 60, 61, 62, or 63 during the tax year. Instead of the standard $8,000, they can contribute up to $11,250 above the base limit, for a total of $35,750. This applies to both 403(b) and governmental 457(b) plans.⁵

Beyond your own deferrals, 403(b) plans are also subject to the Section 415(c) annual addition limit, which caps combined employee and employer contributions at $72,000 for 2026.⁶ That ceiling comes into play when your employer makes matching or nonelective contributions on top of what you defer.

Special Catch-Up Mechanisms

Each plan has one catch-up feature the other doesn’t. If you’ve worked for the same eligible 403(b) employer for at least 15 years, you may be able to contribute an extra $3,000 per year above the standard limit, up to a lifetime cap of $15,000.⁷ Eligible employers include public school systems, hospitals, home health service agencies, health and welfare agencies, and churches.⁸ The amount depends on unused deferral capacity from prior years, so if you’ve been maxing contributions throughout your career, this rule won’t help you much.

The 457(b) equivalent is more aggressive but has a shorter window. During the three tax years immediately before your plan’s normal retirement age, you can contribute up to double the standard annual limit — up to $49,000 in 2026 — to the extent you have unused contribution room from earlier years. You cannot combine the last-three-years catch-up with the age-based catch-up in the same year. You take whichever produces the higher limit.⁹

Why Having Both Plans Doubles Your Room

Your 403(b) elective deferrals aggregate with any 401(k) or SARSEP contributions. Put $24,500 into a 403(b) in 2026 and you cannot also put $24,500 into a 401(k) at a second job.¹

The governmental 457(b) sits on its own track. Its deferral limit is completely independent of your 403(b), 401(k), and SEP contributions.¹⁰ A public university professor with access to both plans could defer $24,500 into each in 2026, sheltering $49,000 from income tax in a single year before any catch-up contributions. Add age-based catch-ups and the number climbs further. For dual-plan participants under 50, that’s close to double what a private-sector worker with only a 401(k) can defer.

Early Withdrawals: The Biggest Practical Difference

Taking money out of a 403(b) before age 59½ triggers a 10% additional tax on top of the ordinary income tax you’ll owe. That penalty applies whether you quit, were laid off, or need the cash for an emergency.¹¹

Several exceptions can waive the 403(b) penalty:

Separation from service during or after the year you turn 55, for distributions from that employer’s plan.
Total and permanent disability.
Death (distributions to beneficiaries).
A series of substantially equal periodic payments calculated under IRS-approved methods.
Unreimbursed medical expenses exceeding 7.5% of adjusted gross income.

These exceptions are listed in the IRS’s penalty guidance.¹¹

Governmental 457(b) distributions are not subject to the 10% penalty at all, regardless of age, as long as you’ve separated from the employer.¹¹ A 52-year-old who leaves a government job can start drawing on their 457(b) immediately and owe only regular income tax. If you’re eyeing early retirement, that penalty-free access is the single strongest argument for prioritizing a governmental 457(b) over a 403(b).

Hardship and Emergency Withdrawals While Employed

Both plans allow access to funds during a financial crisis while you’re still working, but the standards for qualifying are not the same.

A 403(b) hardship distribution follows rules similar to a 401(k). The need must be immediate and heavy, but the qualifying events are relatively broad: buying a primary residence, paying college tuition, preventing eviction, and covering funeral expenses can all qualify.¹² These distributions are still subject to the 10% early withdrawal penalty if you’re under 59½.¹¹

The 457(b) uses a stricter standard called an “unforeseeable emergency,” defined as severe financial hardship from an illness, accident, property loss from casualty, or similar extraordinary circumstances beyond your control. Buying a home and paying college tuition generally do not qualify.¹² Emergency distributions from a governmental 457(b) are exempt from the 10% penalty, just like post-separation distributions.

Rollovers and the 457(b) Rollover Trap

When you leave an employer, your ability to move retirement money depends heavily on which plan holds it.

A 403(b) balance can be rolled into an IRA, a new employer’s 401(k) if that plan accepts rollovers, another 403(b), or a governmental 457(b). A direct rollover moves funds straight to the new account with no tax consequences. A 60-day rollover routes the money through you, and the plan withholds 20% for federal taxes, which you must make up from other funds to roll over the full amount.¹³

Governmental 457(b) balances can also be rolled into an IRA, a 401(k), or a 403(b), but there’s a trap that catches people off guard. Once governmental 457(b) money lands in an IRA or a non-457(b) plan, it loses its penalty-free status. Any distribution from that IRA taken before age 59½ becomes subject to the 10% early withdrawal penalty, even though the same money would have been penalty-free in the 457(b).¹¹ If early retirement is even a possibility, think carefully before rolling 457(b) funds into an IRA. Keeping the money in the governmental 457(b), or rolling it into another governmental 457(b), preserves that penalty-free access.

Non-governmental 457(b) plans are the outlier. Because the employer legally owns the assets, you generally cannot roll them into an IRA or any other retirement account.¹⁴ The money comes to you as taxable income when distributed, and your options for deferring that tax are extremely limited.

Whose Money Is It? Creditor Protection

Assets in a 403(b) must be held in an annuity contract, a custodial account invested in mutual funds, or (for church employees) a retirement income account.¹⁵ These structures keep the money legally separate from your employer’s operating funds. If the hospital or university you work for faces financial trouble, your 403(b) balance is protected from its creditors.¹⁶

Governmental 457(b) plans are required to hold assets in trust for the exclusive benefit of participants and their beneficiaries. Your savings are walled off from the government entity’s general creditors.

Non-governmental 457(b) plans must remain unfunded. The assets representing your deferrals legally belong to the employer, and they remain available to the employer’s general creditors if the organization faces litigation or bankruptcy. Many of these plans use rabbi trusts to hold the deferrals, but the trust assets are still subject to creditor claims, and employees rank below general creditors in priority.¹⁷ That risk is why these plans are restricted to senior management and highly compensated employees.

The 2026 Roth Catch-Up Rule for High Earners

Both 403(b) and governmental 457(b) plans may offer a designated Roth account, where you contribute after-tax dollars and later withdraw them tax-free. A qualified tax-free distribution requires that at least five tax years have passed since your first Roth contribution to the plan and that you’ve reached age 59½, become disabled, or died.¹⁸ Roth contributions count toward the same $24,500 annual deferral limit as pre-tax contributions.

Starting in 2026, SECURE 2.0 adds a wrinkle. If your FICA-taxable wages from the plan’s employer exceeded $150,000 in the prior tax year, all of your catch-up contributions to that 403(b) or governmental 457(b) must go into the Roth account. Pre-tax catch-up deferrals are no longer an option above that wage threshold. If your plan doesn’t offer a Roth option at all, you lose the ability to make catch-up contributions entirely.

Side-by-Side

Eligible employers: 403(b) covers public schools, 501(c)(3) nonprofits, and churches. Governmental 457(b) covers state and local governments. Non-governmental 457(b) covers tax-exempt nonprofits but limits participation to select employees.
2026 deferral limit: $24,500 for both plans, with $8,000 catch-up at age 50 and $11,250 at ages 60 through 63.
Limit coordination: 403(b) deferrals aggregate with 401(k) and SARSEP plans. 457(b) deferrals are independent.
10% early withdrawal penalty: Applies to 403(b) distributions before 59½, with exceptions. Does not apply to governmental 457(b) distributions after separation from service.
In-service withdrawals: 403(b) hardship standard includes home purchases and tuition. 457(b) unforeseeable emergency standard generally excludes those expenses.
Rollovers: 403(b) rolls freely into IRAs and other plans. Governmental 457(b) can roll over but loses its penalty-free advantage. Non-governmental 457(b) generally cannot be rolled over.
Creditor protection: 403(b) and governmental 457(b) assets are held in trust and protected. Non-governmental 457(b) assets belong to the employer and are exposed to its creditors.

1
Internal Revenue Service. Retirement Topics 403b Contribution Limits
2
Internal Revenue Service. IRC 403(b) Tax-Sheltered Annuity Plans
3
Internal Revenue Service. Comparison of Tax-Exempt 457(b) Plans and Governmental 457(b) Plans
4
Internal Revenue Service. Retirement Topics Who Can Participate in a 457b Plan
5
Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
6
Internal Revenue Service. COLA Increases for Dollar Limitations on Benefits and Contributions
7
Internal Revenue Service. 403(b) Plans – Catch-Up Contributions – Section: Special 403(b) Catch-Up
8
Internal Revenue Service. 403(b) Plan Fix-It Guide – An Employee Making a 15-Years of Service Catch-Up Contribution
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Internal Revenue Service. Issue Snapshot – Section 457(b) Plan – Catch-Up Contributions
10
Internal Revenue Service. How Much Salary Can You Defer if You’re Eligible for More Than One Retirement Plan
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Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
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Internal Revenue Service. Retirement Plans FAQs Regarding Hardship Distributions
13
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
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Internal Revenue Service. Non-Governmental 457(b) Deferred Compensation Plans
15
Internal Revenue Service. Retirement Plans FAQs Regarding 403(b) Tax-Sheltered Annuity Plans
16
Office of the Law Revision Counsel. 26 USC 403 – Taxation of Employee Annuities
17
Internal Revenue Service. Non-Governmental 457(b) Deferred Compensation Plans – Section: Key Features of Non-Government 457(b) Plan
18
Internal Revenue Service. Retirement Topics – Designated Roth Account