A pension covers a large share of retirement income, but rarely all of it. Most school districts and many state and local employers offer two voluntary savings plans on top: the 403(b) and the 457(b). They look similar, and you can contribute to both at once, but they have different strengths.
The basics
Both plans let you save from your paycheck before tax, or after tax as Roth contributions if your employer offers that option. Money grows without yearly tax, and you pay tax on traditional contributions when you withdraw them.
| 403(b) | 457(b) (governmental) | |
|---|---|---|
| Who offers it | Public schools, colleges, nonprofits | State and local governments, many school districts |
| 2026 contribution limit | $24,500 | $24,500, separate from the 403(b) |
| Age 50+ catch-up | $8,000 more | $8,000 more |
| Ages 60 to 63 | $11,250 catch-up in place of $8,000 | $11,250 catch-up in place of $8,000 |
| Special catch-up | Up to $3,000 a year with 15 years at one employer | Up to double the limit in the last 3 years before normal retirement age |
| 10% early withdrawal penalty | Yes, before 59½ (55 if you separate that year or later) | No, once you leave the employer |
| Typical providers | Insurance companies and fund companies, many approved per district | One plan chosen by the employer |
Because the limits are separate, a public worker with access to both can save $49,000 in 2026, and more with catch-up contributions.
The 457(b)’s big advantage
Money in a governmental 457(b) can be withdrawn without the 10% penalty as soon as you leave your job, at any age. That makes it ideal for people who retire in their fifties under a Rule of 80 or a 30-year rule and need income before Social Security or to cover health insurance before Medicare. A 403(b) only avoids the penalty if you leave in or after the year you turn 55.
Watch the fees
403(b) plans in many school districts are crowded with vendors, and some sell annuity products with high fees and surrender charges. A plan charging 2% a year instead of 0.2% can cost a teacher more than $100,000 over a career. Look at the expense ratio of each fund and avoid products with surrender charges. If your district’s 457(b) has low-cost index funds, it is often the better first choice.
Which to fund first
- If your employer matches contributions to either plan, take the full match first.
- If you might retire before 55, favor the 457(b) for its penalty-free access.
- Pick the plan with lower costs and better funds.
- If you can save more than one limit, use both.
Roth or traditional?
Traditional contributions cut your tax now. Roth contributions are taxed now and come out tax-free later. Public retirees often have a solid taxable income from their pension, so their tax bracket in retirement may not fall much. That makes Roth contributions worth a look, especially early in a career. From 2026, workers earning above a set wage threshold must make catch-up contributions as Roth.
Using savings with your pension
Savings in these plans can bridge the years before Social Security, pay for health coverage before 65, make up for a plan without COLAs, and give you a reserve for large costs. They can also fund the purchase of service credit through a direct transfer, which avoids tax on the money moved. See buying service credit.