Should Teachers Use a 403(b) or 457(b) for Retirement


Retirement planning is essential for everyone, including teachers who often deal with limited resources and face unique challenges in securing their financial futures. Among the available retirement options for teachers are the 403(b) and 457(b) plans. Deciding which plan to use can be a challenge, but understanding their differences and benefits can help teachers make informed decisions on how to best save for retirement.

403(b) Plans

A 403(b) plan is a tax-deferred retirement savings vehicle designed specifically for employees of educational institutions, non-profit organizations, and certain ministers. Contributions to a 403(b) plan are made pre-tax, lowering an individual’s taxable income. The money invested then grows on a tax-deferred basis until it is withdrawn during retirement when the individual typically has a lower tax rate.

Advantages of a 403(b) Plan:

1. Employer matching: Many educational employers provide matching funds to incentivize participation in the plan.

2. Flexible withdrawal options: Participants can take loans or hardship withdrawals from their 403(b) accounts under specific circumstances.

3. Catch-up contributions: Teachers aged 50 or older can make additional catch-up contributions to their 403(b), allowing them to save even more for retirement.

457(b) Plans

The 457(b) plan is another tax-deferred retirement savings option available to employees of state and local governments, as well as certain non-profit organizations. Like the 403(b), contributions to a 457(b) are made pre-tax, and the invested funds grow tax-deferred until withdrawal in retirement.

Advantages of a 457(b) Plan:

1. No early withdrawal penalty: Unlike the 403(b), there is no penalty for withdrawing funds from a 457(b) before reaching age 59½, providing greater flexibility.

2. Double catch-up contributions: Participants in a 457(b) plan can make double catch-up contributions for the last three years before reaching normal retirement age, potentially boosting their retirement savings.

3. Separate contribution limits: If a teacher has access to both a 403(b) and 457(b), they can contribute the maximum amount to each plan, effectively doubling their contribution limit.

Which Plan is Right for Teachers?

Deciding whether to opt for a 403(b) or 457(b) will depend on the teacher’s specific financial situation and future goals. Factors to consider include:

– Employer matching: If an employer offers matching funds for a 403(b), it’s often wise to contribute enough to take full advantage of that match. Free money is hard to pass up!

– Flexibility: For those who anticipate needing more financial flexibility in the future, a 457(b) plan may be more attractive due to its lack of early withdrawal penalties.

– Contribution Limits: Teachers who want to maximize their retirement savings and have access to both plans may choose to contribute the maximum allowable amount to each plan.


The choice between a 403(b) and a 457(b) for retirement should be based on an individual’s unique circumstances and financial goals. By understanding the differences in these plans, teachers can confidently decide which one (or both) will help them achieve a financially secure retirement. Consulting with a financial advisor is also recommended, as they can provide personalized guidance based on an individual’s specific needs and objectives.

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