Making the Most of Your School District’s 403(b) and 457(b) Plans in 2026

Your school district’s 403(b) and 457(b) retirement plans are powerful tools designed to help you build long-term financial security. One of the strongest principles in successful investing is straightforward: contribute as much as you can, as early as you can. By understanding how each plan works—where they are similar, where they differ, and how traditional and Roth options fit into your long-term tax strategy—you can make more confident, informed decisions about your financial future.

For 2026, annual contribution limits are increasing, giving you even more opportunity to save. School employees may now contribute up to $24,500 to a 403(b) plan and another $24,500 to a 457(b) plan, allowing you to maximize savings across both accounts if you choose. Additional catch-up contributions are available as well. Employees who are age 50 or older may contribute an additional $8,000 to each plan, and those between ages 60 and 63 may take advantage of a larger special catch-up of $11,250. One important change from the SECURE 2.0 Act also begins in 2026: employees earning more than $150,000, considered highly compensated, must make any catch-up contributions on a Roth (after-tax) basis.

Although 403(b) and 457(b) plans share many similarities, there is one key difference that often influences how employees use them: withdrawal rules. With a 403(b) plan, if you retire before the year in which you turn 55, you generally must wait until age 59½ to take penalty-free withdrawals. With a 457(b) plan, however, you may begin taking withdrawals immediately once you separate from service, regardless of age, without facing an early-withdrawal penalty. This flexibility makes the 457(b) especially helpful for employees who may retire early or change careers, and it is an important factor to consider before rolling funds into another type of retirement account.

Choosing between traditional and Roth contributions is another major decision point. Traditional contributions are made with pre-tax income, which reduces your taxable income today. The contributions and their investment growth accumulate tax-deferred, and you pay ordinary income tax on the withdrawals you take in retirement. Roth contributions, by contrast, are made with after-tax dollars, meaning you do not receive a tax deduction up front. However, both the contributions and any earnings may be withdrawn tax-free in retirement, as long as the account has been open for at least five years and you are over age 59½. Your current tax bracket, expected future tax rate, and long-term financial goals all play a role in determining which approach—or combination of approaches—may serve you best.

Making these decisions thoughtfully begins with reviewing your district’s plan details, considering your current and future tax situation, and focusing on long-term goals rather than short-term market movement. Above all, the earlier you begin contributing, the greater your opportunity for long-term growth. If the rules or options feel overwhelming, professionals like Williams and Company can help you understand how the plans work and how to tailor the strategy to your needs, empowering you to build a more secure retirement.

*This material was created to provide accurate and reliable information on the subjects covered. The contents of this communication are not intended to be nor should it be treated as tax, legal or accounting advice. The services of an appropriate professional should be sought regarding your situation.