Maximizing Retirement Savings: Best Practices for 403(b) and 457 Accounts

As an employee of a public school or government agency, you may have access to retirement savings plans like 403(b) or 457 accounts. These plans offer unique benefits and considerations that can help you build a secure financial future. In this article, we'll explore the best practices for saving for retirement with 403(b) and 457 accounts.



1. Understand the Basics
- 403(b) Plans: Offered to employees of public schools, hospitals, and certain nonprofit organizations. Contributions are typically made pre-tax, reducing your taxable income. Withdrawals are taxed as ordinary income.
- 457(b) Plans: Available to employees of state and local governments, as well as certain nonprofit organizations. Contributions can be made pre- or post-tax, and withdrawals are taxed accordingly.

2. Contribution Limits and Catch-up Provisions
- Both 403(b) and 457(b) plans have the same annual contribution limits: $23,000 for 2024 and $23,500 for 2025.
- Employees aged 50 and older can make additional catch-up contributions: $7,500 for 2024 and 2025.
- 403(b) plans offer an extra catch-up provision for those with at least 15 years of service, allowing an additional $3,000 contribution per year.
- 457(b) plans allow participants within three years of their normal retirement age to contribute up to twice the annual limit, subject to certain conditions.

3. Investment Options
- 403(b) plans typically offer annuities and mutual funds as investment options. Some plans may have limited options, so it's essential to review the available choices.
- 457(b) plans also offer annuities and mutual funds, with similar considerations for investment options.

4. Employer Matching
- Employer matching is less common in 403(b) and 457(b) plans compared to 401(k) plans. However, some plans may offer matching contributions, often with short or immediate vesting periods.

5. Loan and Withdrawal Provisions
- Both 403(b) and 457(b) plans allow for loans and hardship withdrawals, but the rules differ between the two plans. It's crucial to understand the specific provisions of your plan.

6. Diversification and Asset Allocation
- Diversify your investments within your 403(b) or 457(b) plan to spread risk. Consider a mix of stocks, bonds, and cash equivalents to create a balanced portfolio tailored to your risk tolerance and time horizon.

7. Review and Adjust Your Portfolio Regularly
- Regularly review your 403(b) or 457(b) portfolio to ensure it aligns with your financial goals and risk tolerance. Make adjustments as needed to maintain a well-balanced and diversified portfolio.

By following these best practices, you can make the most of your 403(b) or 457(b) retirement account and build a secure financial future. Don't forget to take advantage of any employer matching contributions and consider contributing the maximum amount allowed each year, including catch-up contributions if eligible.