403(b) vs. 457 Plans: Which One Should Nurses Choose?

For nurses considering early retirement or career changes, the choice between the two can provide valuable flexibility.

Many nurses working in hospitals or government health systems have access to two retirement plans instead of one: a 403(b) and a 457 plan.

At first glance they look similar—they both allow you to save money from your paycheck before taxes—but there are several important differences that can affect how and when you use the money.

Understanding how each plan works can help you decide where to contribute first and how to maximize your retirement savings.

What Is a 403(b)?

A 403(b) is a retirement plan available to employees of:

• Public schools

• Nonprofit hospitals

• Charitable organizations

It works very similarly to a 401(k).

Key Features

• Contributions are taken directly from your paycheck• Contributions can be pre-tax or Roth depending on the plan• Investments typically include mutual funds or annuity products• Funds are intended for retirement

Contribution Limits (2026)

You can contribute up to:

$23,500 per year (plus catch-up contributions if eligible).

Your employer may also offer a matching contribution, which is essentially additional retirement savings.

What Is a 457 Plan?

A 457 plan is commonly offered to state and local government employees, including many nurses working for public hospital systems.

The main difference is withdrawal flexibility.

Key Features

• Payroll contributions similar to a 403(b)• Usually pre-tax contributions• Investment options often similar to 403(b) plans• No early withdrawal penalty if you leave your employer

The Biggest Difference: Access to Your Money

One of the most important distinctions between these plans is when you can access the money.

403(b)

Withdrawals before age 59½ may be subject to:

• Income taxes• A 10% early withdrawal penalty

457

If you leave your employer, you can withdraw funds at any age without the 10% early penalty.

You still pay income taxes, but the penalty does not apply.

For nurses considering early retirement or career changes, this flexibility can be valuable.

A couple of important nuances to keep in mind:

This applies to governmental 457(b) plans only. Non-governmental 457(b) plans (offered by some nonprofits and tax-exempt organizations) have different and more complex rules.

The separation from service is the trigger. You must have actually left the employer — you can't still be employed there and take penalty-free withdrawals early.

You still owe income tax. The exemption is only from the 10% penalty. Withdrawals are still taxed as ordinary income in the year you take them, so large withdrawals can push you into a higher bracket.

Rollover caution. If you roll a 457(b) into an IRA, you lose this penalty exemption — the IRA's normal rules (including the 10% penalty before age 59½) then apply.

This penalty-free feature is one of the most valuable and underappreciated advantages of the 457(b) plan, especially for people who plan to retire early.

Contribution Strategy: Can You Use Both?

Yes. One of the biggest advantages for nurses who have access to both plans is that each plan has its own contribution limit.

This means you could potentially contribute:

• Up to $23,500 to a 403(b)• Up to $23,500 to a 457

For a total of $47,000 per year in tax-advantaged retirement savings (not including catch-up contributions).

This can significantly accelerate retirement savings for high-earning nurses.

When a 403(b) May Be the Priority

You might prioritize a 403(b) when:

• Your employer offers a matching contribution• The investment options are strong and low cost• You plan to keep the money invested until retirement age

Employer matching contributions are often considered a key part of retirement savings planning.

When a 457 Plan May Be Attractive

A 457 plan may be especially useful if:

• You want flexibility before age 59½• You may retire early or change employers• You want to increase tax-deferred savings beyond your 403(b)

Many financial planners view a 457 as a powerful supplemental retirement account when used strategically.

The Bottom Line

Both plans can play an important role in a nurse’s retirement strategy.

In general:

• 403(b): Often the first stop if employer matching is available• 457: Adds flexibility and allows additional tax-advantaged savings

For nurses who have access to both plans, using them together can be a way to build retirement savings more efficiently over time.