Master the Plan Mechanics
By the end of this section you will be able to walk clients through tax benefits, contribution strategies, and withdrawal scenarios using real numbers
A significant difference between 403(b) and 457 plans lies in their eligibility and participation rules.
403(b) is subject to the Universal Availability Rule, requiring that virtually all eligible employees be given the opportunity to make elective deferrals. Employers must also provide meaningful annual notice of this right.
403(b)(9) Highlight
403(b)(9) plans are also not subject to the Universal Availability Rule, allowing churches to limit access as they see fit. This creates more flexibility in plan design and eligibility decisions.
In contrast, 457 plans do not require universal availability. Employers may limit participation to specific job classes or statuses, offering greater control over plan design — but potentially narrowing the pool of eligible participants.
FICA Alternative Highlight
Enrollment is automatic for part-time, seasonal, and temporary (PST) employees who are not eligible to participate in their employer’s retirement plan.
Contributions and Withdrawals
Both plans allow pre-tax contributions (and Roth, if the employer permits), growing tax-deferred until retirement. They also support:
- Regular elective salary deferrals
- Age-based and service-based catch-up contributions
- Withdrawals, loans, and hardship access under certain conditions
FICA Alternative Highlight
Contributions to the plan are required and automatically deducted from wages.
Contribution Limits & Catch-Up Provisions
The elective deferral limit is the same for both plan types. Participants aged 50 and older may contribute an additional catch-up sum, subject to annual IRS updates. See Tax Reference Guide for current IRS guidance.
Unique to each plan:
403(b) plans offer an additional 15-year “service-based” catch-up provision for long-term employees of the same employer who have under-contributed in past years.
403(b)(9) Highlight
Contribution limits in 403(b)(9) plans follow the same structure as standard 403(b) plans. Ministers can make elective deferrals, including catchups, and also benefit from the parsonage exclusion even on retirement distributions.
457(b) plans offer a special 3-year catch-up provision for participants nearing retirement age, potentially doubling their annual contribution — but this cannot be used in the same year as the age 50 catch-up so financial professionals must help clients choose the most advantageous strategy based on timing and needs.
Withdrawals and Loans
403(b) plans impose a 10% early withdrawal penalty if funds are accessed before age 59½, unless exceptions apply (e.g., separation after age 55, disability).
403(b)(9) Highlight
Despite sharing the 403(b) label, 403(b)(9) plans are exempt from ERISA, simplifying compliance and administrative burden for qualifying employers such as churches and ministries.
457(b) plans, in contrast, do not apply the early withdrawal penalty, regardless of the participant’s age at distribution — though ordinary income tax still applies.
FICA Alternative Highlight
There is no early withdrawal penalty (unlike traditional retirement plans) if a qualifying event occurs before age 59½ and withdrawals are penalty upon employment termination. Savings are fully liquid and never subject to the 10% excise tax.
All plans support tax-free rollovers to IRAs or other qualified plans upon separation from service. Financial professionals should educate clients on consolidation strategies, especially if they’re retiring with multiple plan types.
The Emergency Access Waiver is available for policies currently under IRC §403(b) and §457(b) at no extra cost however it must be approved by the Plan/TPA. When approved, all withdrawal charges are waived for 403(b) hardship or 457(b) unforeseen emergency distributions. For separation from service or disability, withdrawals up to 20% of the accumulation value in years 2-4, and all withdrawals starting in year 5, don’t incur a withdrawal charge. To use this waiver, the policy must have been in force for at least one year. The MVA and bonus recapture is also waived for Emergency Access Waiver benefits.
Plan Portability and Rollovers
All plans support tax-free rollovers to IRAs or other qualified plans upon separation from service. Financial professionals should educate clients on consolidation strategies, especially if they’re retiring with multiple plan types.
403(b) → IRA, another 403(b), or 401(k)
457(b) → IRA, another 457(b), 403(b), or 401(k)
403(b)(9) Caution
Retirement distributions designated for housing allowance under a 403(b)(9) must be properly documented before rollover to preserve tax advantages.
Financial professionals should assess rollover timing, tax impact, and withdrawal flexibility when helping clients transition between jobs or into retirement.
Additional Tools & Resources are available on the Agent Portal.
To go there directly:
Don’t know who to contact?
Send an email to the team at RetirementServices1@NationalLife.com
or call 866-243-7174
Source: IRS 2025
* This hypothetical example is used for illustrative purposes only. Actual results will vary.
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TC8049010(0625)3 | Cat No 108134(0625)