403(b) or 457(b): Which should you choose?

In addition to your primary retirement benefits, UC gives you the option to set aside even more money for your retirement. You can make pretax and Roth contributions to the supplemental savings benefits—the UC 403(b) and UC 457(b) plans—and save more for your future with tax advantages.

So what’s the difference between the two—and which should you choose?

As a UC employee, you can contribute to the 403(b) and the 457(b) as long as you are not a student working fewer than 20 hours per week. You can contribute to either plan or both plans, depending on your budget.

In 2024, you can contribute up to $23,000 to each plan if you are under age 50 (up to $46,000 total this year). You can contribute up to $30,500 to each plan if you are age 50 or older (up to $61,000 total this year).

While the 403(b) and 457(b) are alike in many ways, there are some key differences that can affect your decision.

How are the plans the same?

Both plans are designed to let you save for your future with tax advantages:

  • Your pretax contributions come out of your paycheck before taxes, so it costs you less to save for your future. For example, when you contribute $100 in the 403(b) Plan or 457(b) Plan, it really only costs you $75 out of your paycheck (assuming a 25% tax bracket). Why? Because you pay $25 less in income taxes today. And that means more of your money goes to work for you. You pay taxes when you withdraw your money (contributions and any earnings) in retirement.
  • Conversely, your Roth contributions are taken from your paycheck after taxes are calculated. So, your take-home pay will be lower than if you made an equivalent pretax contribution. Roth, however, gives you the opportunity for tax-free income in retirement. This is because your Roth distributions (including any earnings) can be withdrawn free of federal income tax if certain conditions are met.*

In addition, if you need to withdraw your money while you are still working for UC, both plans allow you to take a withdrawal once you reach age 59.5 or if you incur a financial emergency. Generally, there is a 10% federal tax penalty on withdrawals you take before age 59.5, but there are a number of exceptions. For example, if you leave UC employment after age 55, you can take a withdrawal without penalty.

How are they different?

The key difference between the two plans is how and when you can get access to your money.

  • If you have an extreme financial need while you are working for UC and have to tap your retirement savings, the UC 403(b) allows you to take a loan from your account if you need one. Of course, the 403(b) is designed to let you save for retirement, so make sure you examine all your other options before you take a 403(b) Plan loan.
  • The UC 457(b) Plan will not allow you to take a loan from your plan account.

Wondering which plan is right for you?

Understanding the difference between the UC 403(b) and 457(b) can help you make the most of what UC provides.

So, should you contribute to one plan, or to both? It all comes down to the flexibility you need in accessing your money.

  • If you think you might want to take a loan from your account at some point, you may want to start by contributing to the 403(b) Plan. You can get started saving in the 403(b) in less than a minute at UCRSPenroll.com.
  • To take full advantage of your opportunities to save with tax advantages, you might also consider contributing to both plans.