If you work for a tax-exempt organization under Internal Revenue Code Section 501(c), the retirement plans available to you depend on which subsection your employer falls under. The main 501(c) retirement plans are the 403(b), used by 501(c)(3) charities, public schools, universities, hospitals, and churches; the 457(b), used by state and local governments and certain other tax-exempt employers; and, for other 501(c) entities such as trade associations or social welfare groups, the same 401(k) that for-profit employers offer. Some larger nonprofits also layer on a 401(a) funded entirely by the employer. The differences among these plans are not cosmetic. They change how much you can contribute, whether you can stack accounts, whether your money is protected from your employer’s creditors, and whether you pay a penalty for pulling funds out early.
Matching the Plan to Your Employer
The 403(b) is restricted to 501(c)(3) organizations and public schools. If your employer is a 501(c)(6) trade association, a 501(c)(4) social welfare organization, or another non-501(c)(3) tax-exempt entity, the 403(b) is off the table, and your employer will typically sponsor a 401(k) instead. There is no tax-exempt restriction on running a 401(k).
The 457(b) is offered by state and local governments (including many public schools and municipal hospitals) and by some tax-exempt organizations, but the version you get depends on the sponsor. A governmental 457(b) is very different from a non-governmental 457(b), and confusing the two can lead to bad decisions about how much to contribute and when to withdraw.
If your employer is a 501(c) organization but not a 501(c)(3), ask HR which plan types you actually have access to. The answer turns on your organization’s specific exempt status.
How the 403(b) Works
The 403(b), sometimes called a tax-sheltered annuity or TSA, is the main retirement vehicle for 501(c)(3) employees and public school staff. The “annuity” label is misleading. A 403(b) account can hold an annuity contract, a custodial account invested in mutual funds, or a retirement income account set up specifically for church employees.1Internal Revenue Service. IRC 403(b) Tax-Sheltered Annuity Plans
Contributions look a lot like 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 for tax-free withdrawals in retirement. Employers can add matching or flat contributions on top.
One feature genuinely sets the 403(b) apart: the universal availability rule. If the plan lets any employee make elective deferrals, it must offer the same opportunity to every employee and communicate that opportunity at least once a year.2Internal Revenue Service. Issue Snapshot – 403(b) Plan – The Universal Availability Requirement There are narrow exceptions: employees who normally work fewer than 20 hours a week, nonresident aliens, students performing certain services, and employees who would contribute $200 or less per year can be excluded.3Internal Revenue Service. 403(b) Plan Fix-It Guide – You Didn’t Give All Employees of the Organization the Opportunity to Make a Salary Deferral In exchange for that universal availability, 403(b) plans skip the nondiscrimination testing on elective deferrals that 401(k) plans have to pass.
How the 457(b) Works, and Why the Sponsor Matters
A 457(b) is a deferred compensation plan whose contribution limits sit separately from those of a 403(b) or 401(k). If you have access to both a 403(b) and a 457(b), you can effectively double your annual elective deferrals. But there are two versions, and the risk profile between them is not remotely the same.
Governmental 457(b)
Governmental 457(b) plans, offered by state and local government employers, generally function like a 401(k) in daily use. Your contributions go into a trust, you pick from a menu of investments, and the assets are protected from your employer’s creditors. Most governmental 457(b) plans are open to all employees.
The big advantage 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.4Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions Retire at 52 and pull from your governmental 457(b), and you’ll owe regular income tax but skip the penalty that would hit a 403(b) or 401(k) distribution before age 59½. For anyone planning an early exit, that liquidity matters.
Non-Governmental 457(b)
Non-governmental 457(b) plans, sponsored by tax-exempt organizations that are not government entities, come with two significant catches. First, participation must be limited to a select group of management or highly compensated employees.5Internal Revenue Service. Non-governmental 457(b) Deferred Compensation Plans There is no bright-line rule for who counts, but the Department of Labor and courts look at what share of the workforce is covered and how their pay compares to everyone else’s. Rank-and-file employees at a private nonprofit cannot participate.
Second, the plan is unfunded. The assets remain the property of the employer and are available to the employer’s general creditors if the organization is sued or goes bankrupt.5Internal 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 fails, you stand behind general creditors. That is a fundamentally different risk than the trust-protected assets in a 403(b) or governmental 457(b), and it is the price of the tax deferral.
Rollover options are also narrower. A governmental 457(b) can be rolled into an IRA, a 401(k), a 403(b), or another governmental 457(b) after separation from service.6Internal Revenue Service. Rollover Chart Funds in a non-governmental 457(b) generally cannot be rolled over to an IRA or another retirement account, and the full distribution is taxed as ordinary income in the year you receive it. Timing matters.
Stacking Plans: 2026 Contribution Limits
For 2026, the standard elective deferral limit for both 403(b) and governmental 457(b) plans is $24,500, covering pre-tax and Roth contributions combined.7Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 If you participate in both a 403(b) and a governmental 457(b), each plan carries its own separate $24,500 limit, so you can defer up to $49,000 across the two.8Internal Revenue Service. Retirement Topics – Contributions
Employees age 50 and older can add $8,000 in catch-up contributions in 2026, lifting the per-plan ceiling to $32,500. Under SECURE 2.0, participants ages 60 through 63 during the year get a higher 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 This enhanced catch-up applies to 403(b) and governmental 457(b) plans. Non-governmental 457(b) plans do not allow any age-based catch-up.
Combined employee and employer contributions to a 403(b) cannot exceed $72,000 for 2026 under the Section 415(c) annual additions limit.9Internal Revenue Service. COLA Increases for Dollar Limitations on Benefits and Contributions That cap covers elective deferrals plus any employer match or non-elective contributions, but not catch-up amounts.
Two Catch-Ups That Only Exist in These Plans
The 15-Year Catch-Up in a 403(b)
If you have worked at least 15 years for the same qualifying employer, such as a public school, hospital, or church, you may be able to contribute up to $3,000 extra per year above the standard deferral limit, with a lifetime cap of $15,000 in additional deferrals.10Internal 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 math is more restrictive than it looks. Your extra deferral in any year is the smallest of three figures: $3,000; $15,000 minus prior 15-year catch-ups you’ve used; and $5,000 times your total years of service minus every elective deferral you’ve made over your career with that employer.11Internal Revenue Service. 403(b) Plans – Catch-up Contributions That last prong is where people get caught. Steady contributors for 20 years often have little or no room left even though they clearly cleared the 15-year hurdle. When you qualify for both the 15-year catch-up and the age 50 catch-up, IRS ordering rules apply the 15-year amount first.
The Special Three-Year Catch-Up in a 457(b)
Both governmental and non-governmental 457(b) plans offer an enhanced catch-up during the three tax years immediately before the year you reach the plan’s Normal Retirement Age. That age is defined in the plan document and is usually 65 or the age at which you qualify for full pension benefits, but cannot exceed 70½.12Internal 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 annual deferral limit, which works out to $49,000 in 2026. The catch: this doubled limit is only available to the extent you underutilized your limits in prior years with the same employer.12Internal Revenue Service. Issue Snapshot – Section 457(b) Plan of Governmental and Tax-Exempt Employers – Catch-Up Contributions If you maxed out every year, this provision gives you nothing. And if you’re eligible for both the age 50 (or age 60–63) catch-up and the special three-year catch-up in the same year, you use whichever is higher, not both.
SECURE 2.0 Provisions to Watch
Two SECURE 2.0 changes are worth knowing now because they alter how you contribute.
For 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. Plans may adopt this earlier voluntarily.13Internal Revenue Service. Treasury, IRS Issue Final Regulations on New Roth Catch-Up Rule, Other SECURE 2.0 Act Provisions The base wage threshold is $145,000, indexed for inflation, applied to FICA wages from the sponsoring employer in the previous calendar year. The rule covers 401(k), 403(b), and governmental 457(b) plans. If you’re above the threshold, your catch-up dollars go in after-tax but come out tax-free.
SECURE 2.0 also requires automatic enrollment for new 403(b) plans established after December 29, 2022. New participants must be auto-enrolled at 3% to 10% of pay, with the rate rising 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 that existed before the law are grandfathered.
Getting Money Out
Hardship Withdrawals
A 403(b) may allow hardship withdrawals if the plan document permits them; employers aren’t required to offer this. If available, you must show an immediate and heavy financial need. The IRS recognizes safe harbor reasons that automatically qualify: unreimbursed medical expenses for you or your family; costs of buying a primary residence (not mortgage payments); tuition and related education costs for the next 12 months; payments to prevent eviction or foreclosure on your primary home; funeral costs; and certain repairs to your primary residence. Hardship withdrawals are taxed as ordinary income and cannot be rolled over into another retirement account.14Internal Revenue Service. Retirement Topics – Hardship Distributions Under age 59½, the 10% early withdrawal penalty applies on top of the income tax.
Plan Loans
Many 403(b) and governmental 457(b) plans let you borrow from your account instead of taking a hardship withdrawal. The maximum loan 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.15Internal 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 available for loans used to buy a primary residence. A loan not 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).6Internal Revenue Service. Rollover Chart A direct rollover avoids the 20% mandatory withholding that hits if you take the distribution yourself and then try to complete a 60-day rollover.16Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions Hardship distributions, required minimum distributions, and certain periodic payments are not eligible for rollover. Non-governmental 457(b) balances generally cannot be rolled over at all.
Required Minimum Distributions
You generally must begin RMDs from a 403(b) or 457(b) by April 1 following the later of the year you turn 73 or the year you retire, if the plan allows the delay for employees still working.17Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs) Missing an RMD triggers a steep excise tax, so this is a deadline to track carefully as you approach your 70s.