Although nonprofit organizations, including governmental employers, do not pay federal income taxes, they have incentive to provide retirement plans to employees in order to both compete with private-sector employers and help their employees achieve financial security in retirement. This module addresses two retirement plans available to employees of nonprofit and governmental organizations: the Section 403(b) tax-sheltered annuity (TSA), and the Section 457 plan.

The Section 403(b) plan is a tax-deferred retirement plan available to eligible employees of public schools and other tax-exempt organizations including some hospitals, churches, and charitable organizations. It shares many features with the Section 401(k) plan that is widely used in the private sector.

Section 457 plans, are deferred compensation plans typically offered to state and local public employees or a select group of highly compensated employees or top management at non-governmental organization. Although these plans are growing in popularity as a supplement to 401(k) or 403(b) plans to provide additional tax deferral opportunity they are often misunderstood.

Referring to the matrix on the following page, 403(b) plans are listed on the bottom of the third column and we will be moving to the top of the fourth column when we cover Section 457 plans. The concept of nonqualified deferred compensation is introduced in this module with Section 457 plans, and we will cover it in more detail in Module 8.

About the Authors

Kristen MacKenzie, MBA, CFP®, CRPC® is an associate professor at the College for Financial Planning. Kristen has over 20 years of experience in the financial services industry, both as an active financial planner and as a provider of financial education. She graduated from the University of Connecticut with a degree in economics and later received her MBA at the University of Colorado.

Michael Angell, CFP®, EA is an associate professor at the College for Financial Planning. He obtained his bachelor's degree in mathematics at Creighton University. His 20+ years of work experience includes banking, insurance, investments, retirement, and estate planning. In addition to his responsibilities at the College, Michael also serves as a private client services advisor with an independent investment firm and is also a federally licensed tax practitioner with a nationally recognized company. You can contact him at

Complexity Level: Intermediate