Can You Max Out Both 403(b) And 457(b) Plans?
Yes, you can max out both a 403(b) and a 457(b) plan simultaneously if you are eligible for both plans, typically through certain public schools, non-profit organizations, or government employers. These two plans have separate contribution limits, allowing you to contribute the full annual limit to each plan.
Contribution Limits for 2025:
403(b) Contribution Limit: The limit for employee contributions is expected to be $23,500 in 2025
457(b) Contribution Limit: The 457(b) plan also has a separate contribution limit of $23,500 for 2025
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If you are aged 50 or older, you can also make catch-up contributions to both plans, adding an extra $7,500 to each. This means in 2025, if you are eligible, you could potentially contribute up to $31,000 to each plan, for a total of $62,000 across both plans.
Special Considerations:
The 457(b) plan has a special "final three-year catch-up" provision, allowing even higher contributions if you are within three years of the plan’s normal retirement age and haven’t contributed the maximum in previous years.
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Are 403(b) and 457(b) Limits Combined?
No, the contribution limits for 403(b) and 457(b) plans are seperate. This means you can contribute the full amount to both a 403(b) and a 457(b) plan in the same year, effectively doubling your retirement savings potential if you're eligible for both plans.
This allows you to contribute up to $47,000 across both plans in 2025 if you are under age 50. If you are age 50 or older, you can also make additional catch-up contributions of $7,500 per plan, bringing the total potential contributions to $62,000 ($31,000 per plan).
Since these plans have separate limits, contributing the maximum to both is a powerful strategy for maximizing tax-advantaged retirement savings. This is especially beneficial for employees of public schools, non-profits, and government entities who often have access to both types of plans.
Does It Make Sense To Have Both 403(b) and 457(b) Plans?
Yes, it can make a lot of sense to have both a 403(b) and a 457(b) plan, especially if you are eligible for both through your employer. Here are several reasons why contributing to both plans can be advantageous:
1. Separate Contribution Limits:
Both the 403(b) and 457(b) plans have separate contribution limits, allowing you to maximize retirement savings. In 2025, each plan has an expected employee contribution limit of $23,500, meaning you can contribute up to $47,000 across both plans if you are under 50 years old. For those aged 50 or older, the catch-up contributions of $7,500 per plan bring the total potential savings to $62,000 per year.
2. Tax Deferral on Both Plans:
Contributing to both plans allows you to defer taxes on a larger portion of your income, which reduces your current taxable income. This is particularly beneficial for individuals in higher tax brackets who want to delay paying taxes until retirement, when they might be in a lower tax bracket.
3. Flexible Withdrawal Options:
One of the key benefits of the 457(b) plan is that there are no early withdrawal penalties if you leave your job before the age of 59½. This gives you more flexibility if you need to access your funds early. In contrast, the 403(b) plan follows the standard rules, which impose a 10% penalty on early withdrawals before age 59½ (unless certain exceptions apply).
4. Maximize Retirement Savings in Final Years:
If you are nearing retirement, contributing to both plans allows you to significantly boost your retirement savings. This is especially valuable for individuals in their 50s or early 60s who may want to catch up on savings or increase their financial security before retiring.
5. Catch-Up Contributions:
Both plans offer catch-up contributions for those aged 50 and older. Additionally, the 457(b) plan has a special three-year catch-up provision, allowing participants within three years of their plan’s normal retirement age to contribute even more, provided they haven’t maxed out contributions in previous years.
6. Diversification of Accounts:
Contributing to both a 403(b) and a 457(b) plan allows you to diversify your retirement savings across two different types of accounts, each with its own set of rules. This diversification can be helpful for strategic withdrawals in retirement, potentially minimizing taxes and managing income distribution more effectively.
Takeaway
Yes, you can max out both 403(b) and a 457(b) plans at the same time. Contributing to both a 403(b) and a 457(b) plan can significantly increase your savings potential. These plans have separate contribution limits, allowing you to contribute up to $23,500 per plan in 2025, for a total of $47,000. If you are 50 or older, you can add $7,500 in catch-up contributions to each plan, bringing the total to $62,000 annually.
The 457(b) plan's early withdrawal flexibility, without penalties before age 59½, adds a unique benefit that can help you manage your finances if you need access to your funds before retirement. This approach is particularly beneficial for those who want to maximize savings in their final working years or for high-income earners looking to defer taxes.
To make the most of these opportunities and develop a personalized retirement strategy, reach out to ZAG Consulting for expert financial planning advice. We’re here to help you navigate these options and maximize your retirement potential.
