457b Retirement Plan:
Definition, Benefits & Comparison

A 457(b) retirement plan is a tax-advantaged, employer-sponsored deferred compensation plan offered to state and local government employees and employees of certain tax-exempt organizations. This retirement savings account allows eligible participants to set aside pre-tax dollars from their income, reducing their current taxable income, with money growing tax-deferred until withdrawal at retirement.

A 457(b) plan is split into 2 different categories—governmental and non-governmental—depending on whether you work for a government entity or a tax-exempt organization. Law enforcement officers, civil servants, university workers, and employees of certain nonprofits are typical participants in 457(b) plans.

Related terms: deferred compensation plan, 401(k) plan, 403(b) plan, governmental 457(b), non-governmental 457(b)

A 457(b) plan can be established by state or local governments and tax-exempt organizations under IRC Section 501(c). The sponsoring organization must meet these specific criteria to offer a 457(b) plan to its employees.

For employees, eligibility varies by plan type. Governmental 457(b) plans typically cover government workers such as civil servants and law enforcement officers. Non-governmental 457(b) plans are offered by tax-exempt entities like colleges and nonprofits. Some plans also allow independent contractors to participate, unlike traditional 401(k) plans which usually exclude them.

Employers or employees contribute to 457(b) plans through salary reductions up to the IRS limit on behalf of participants. When you open a 457(b), you typically set aside pre-tax dollars in the account, reducing your current taxable income. Money in the account can be invested and potentially grow until you take withdrawals, at which point you pay taxes on what you take out.

Pre-tax contributions to a 457(b) plan reduce the employee's taxable income for the year. These contributions and all associated earnings are not subject to tax until withdrawal. Some plans offer a Roth contribution option, where you contribute post-tax dollars and then do not have to pay taxes when you take that money out at retirement if certain criteria are met.

The value of the account is based on the contributions made and the investment performance over time. An employee can control how their 457(b) plan investments are made by choosing from options offered by their employer's plan, which typically includes a range of options from conservative stable value funds to aggressive stock funds.

Governmental 457(b) plans are sponsored by state or local government entities. Like with 401(k)s, your contributions are held in a trust and cannot be claimed by your employer's creditors, providing protection for your retirement assets.

Money saved in a governmental 457(b) can be rolled into other retirement accounts, such as IRAs and 401(k)s. Governmental plans also offer more flexibility than non-governmental plans, including the ability to take loans against your account balance and automatic enrollment options.

A non-governmental 457(b) plan, sometimes called a tax-exempt 457(b) plan, is backed by the offering company—perhaps a college or other nonprofit organization. In a non-governmental 457(b), you tell your employer the percentage of your income you would like to contribute, but the employer owns the account, not you.

If that employer runs into trouble with creditors, your funds could be at risk. Because the account is your employer's and not yours, you cannot roll over funds from a non-governmental 457(b) plan into another retirement account and you may not have control over how the funds may be invested. You also cannot take a loan backed by the funds in your non-governmental 457(b), like you can with a governmental plan.

Another key difference is enrollment: whereas you could be automatically enrolled in a governmental 457(b), you have to elect to participate in a non-governmental plan. Your non-governmental 457(b) contributions remain subject to FICA taxes and become part of the employer's general assets, though you are automatically entitled to your contributions and earnings upon separation from employment.

In 2026, you can contribute up to $24,500 to a 457(b) plan or up to your includible compensation (typically your taxable wages plus benefits for the year), if that is less than the annual limit. This amount increased from $23,500 in 2025.

Individuals in governmental plans only who are 50 or over for any part of the year might also be eligible to make a catch-up contribution of up to $8,000, boosting their 2026 contribution limit to $32,500. Under a change made in the SECURE 2.0 Act, individuals aged 60 through 63 years old, in plans that allow it, can make increased super catch-up contributions of up to $11,250 instead of $8,000 in 2026.

If your prior year wages are greater than $150,000 in 2026, then your catch-up contributions must be made as Roth contributions. If a Roth option is not available to you, you cannot make catch-up contributions. Your plan, particularly if it is a non-governmental plan, might have lower contribution limits than the general maximum, so check with your plan sponsor.

If you work for multiple employers that each sponsor 457(b) plans, you are still limited to $24,500 in contributions in total, not per plan, if you are not eligible for catch-up contributions. However, if your employer offers both a 457(b) and a 403(b), as some colleges do, you may contribute up to double the maximum amount, totaling $49,000 in 2026.

Another unique feature of governmental 457(b) plans is that if you are within 3 years of your plan's normal retirement age, your plan might allow you to contribute up to double the annual limit or the annual 457(b) limit plus any amount of unused contribution limit from prior years.

If your governmental 457(b) plan allows for age 50 catch-up contributions as well as the special 3-year pre-retirement catch-up contributions, you can take advantage of the larger deferral but not both. This special pre-retirement catch-up provision is unique to 457(b) plans and is not available in 401(k) or 403(b) plans.

If you do not remove excess contributions by the tax return deadline of the next year, usually April 15th, those dollars could be double taxed. The excess amount would be taxed once for the year you or your employer contributed and again when you take the distribution.

To avoid this penalty, contact your plan administrator immediately if you realize you have exceeded the contribution limits. They can help you withdraw the excess contributions and any earnings on those contributions before the deadline.

There are 5 significant advantages for participants in a 457(b) plan:

• Contributions to a 457(b) plan are tax-deferred, reducing your current tax bill
• Earnings on the retirement money are tax-deferred until withdrawal
• Ability to withdraw funds before age 59½ penalty-free if you are no longer employed by the plan sponsor, unlike 401(k) and 403(b) plans
• Special catch-up contribution options including the unique 3-year pre-retirement catch-up provision
• Compound investments grow over time as regular contributions add up to a more financially secure future

For employees, the key benefit of a 457(b) plan is that the savings are tax-deferred: contributions are made on a pre-tax basis, reducing taxable income and growing tax-deferred until withdrawal. Tax-deferred plans are deducted directly from your salary before your employer withholds income tax, making the savings automatic and effortless.

For employers, offering a 457(b) plan can be used as part of a wider recruitment and retention strategy, helping to attract and keep qualified public sector employees in a competitive job market.

Employees can make withdrawals from their 457(b) account when they leave employment. They have the ability to take payments as needed or request scheduled automatic payments. Distributions are available in a lump sum, annual installments or as an annuity.

457(b) withdrawals of pre-tax contributions and earnings are subject to income tax and wage tax, meaning they must be reported as taxable income on that year's tax return. However, unlike 403(b) and 401(k) plans, you can withdraw funds from your 457(b) before age 59½ penalty-free if you are no longer employed by the plan sponsor. There is no additional 10% early withdrawal tax that applies to other retirement plans.

The 10% penalty tax may apply to distributions of assets that were transferred to the 457(b) plan from other types of retirement accounts like 401(k)s or IRAs. Given that the default withdrawal is often a lump sum, your tax liability for that year may increase significantly, which could create a tricky financial situation come tax time if you do not plan correctly.

You may be eligible for an unforeseeable emergency distribution, which could allow you to make an early withdrawal from your plan potentially penalty-free if you are still employed by the plan sponsor. There is a withdrawal option for unforeseen emergencies that meet certain legal criteria, if all other financial resources are exhausted.

Generally, these distributions are allowed if you are impacted by an event beyond your control that you could not plan for, such as an illness, accident, or natural disaster, and you have exhausted other financial options. These distributions could get tricky fast, so consider consulting with a financial or tax professional first.

Required minimum distribution (RMD) rules apply to 457(b) retirement accounts. An RMD is the minimum amount that an employee must withdraw annually in retirement. You must start taking required minimum distributions from your 457(b) on April 1 following the calendar year you turn 73.

An important exception applies: you do not need to take RMDs if you are still working for the plan sponsor and you do not need to take RMDs for Roth assets. It is up to the individual to make sure they are withdrawing in line with the RMD requirements, and there are penalties for not doing so.

A 457(b) plan is often compared to 3 related retirement plan types:

457(b) vs. 401(k)

401(k) plans are employer-sponsored workplace retirement plans popular with for-profit companies, while 457(b) plans serve state and local government employees and tax-exempt organizations. Although employer contributions are possible for 457(b) plans, state and local governments rarely offer a matching benefit. In contrast, employer contributions to 401(k) plans are very common, with nearly 80% of participants in Fidelity-serviced 401(k) plans receiving some form of employer contribution.

The individual contribution limit is the same for both plan types at $24,500 in 2026 for employees under age 50. However, 457(b) plans do not have a separate employer contribution limit, reducing the total amount that could be saved in the plan yearly. For 401(k) plans, the aggregate employee and employer contribution limit is $72,000 in 2026.

Workers' 401(k)s are subject to the Employee Retirement Income Security Act (ERISA), which offers creditor protection. 457(b) plans are not subject to ERISA. Savings in non-governmental 457(b) plans are at risk from creditors if the sponsoring employer goes bankrupt, though governmental 457(b) plans are protected from creditors. Independent contractors are not usually eligible to contribute to an employer-sponsored 401(k), but they could be eligible for their workplace's 457(b) plan, depending on the plan type.

457(b) vs. 403(b)

Although both 457(b) plans and 403(b) plans are employer-sponsored retirement plans for employees of the government and tax-exempt organizations, there are some key differences. Unlike 403(b) and 401(k) plans, you can withdraw funds from your 457(b) before age 59½ penalty-free if you are no longer employed by the plan sponsor, though you still owe income tax on any withdrawals. Governmental 457(b) plans are not subject to the 10% additional tax for early withdrawals that 403(b) plans are subject to except for distributions attributable to a rollover from another type of plan or IRA.

Both plan types allow for catch-up contributions for those 50 and over, but only 457(b) plans could allow bonus contributions within 3 years of normal retirement age through the special pre-retirement catch-up provision. Some 403(b) plans allow employees who have worked for the plan sponsor for 15 years or more to make additional contributions; 457(b) plans do not have a similar loyalty incentive.

457(b) vs. 457(f)

Plans of deferred compensation described in IRC Section 457 can be either eligible plans under IRC 457(b) or ineligible plans under IRC 457(f). Plans eligible under 457(b) allow employees of sponsoring organizations to defer income taxation on retirement savings into future years with standard contribution limits and withdrawal rules. Ineligible 457(f) plans may trigger different tax treatment and are typically used as supplemental compensation arrangements for highly compensated executives rather than broad-based retirement savings vehicles.

Yes, a governmental 457(b) plan may be amended to allow designated Roth contributions and in-plan rollovers to designated Roth accounts. Some 457(b) plans offer a Roth contribution option where Roth contributions are made after-tax, rather than before tax, and withdrawn tax-free at retirement if certain criteria are met.

Depending on your employer plan, there may be a Roth option where you contribute post-tax dollars and then do not have to pay taxes when you take that money out. Employees may be able to make after-tax Roth contributions, which allow for potentially tax-free withdrawals in retirement.

An employee can control how their 457(b) plan investments are made by choosing from options offered by their employer's plan. A typical plan includes a wide range of options, from conservative stable value funds to aggressive stock funds.

Employees can build a diversified portfolio of various funds, select a simple yet diversified target-date or target-risk fund, or rely on specific investment advice from their retirement plan provider. However, investment options are often more limited in 457(b) plans than 401(k) plans, although it varies plan to plan. A lack of options could make it tougher to diversify your savings according to your risk tolerance and financial goals.

Loan options may be available from governmental 457(b) plans, allowing participants to borrow against their account balance. During employment, subject to the employer and IRS and plan rules, employees may be able to make withdrawals after a certain age, which varies based on the plan, or due to an unforeseeable emergency.

However, you cannot take a loan backed by the funds in your non-governmental 457(b) plan, unlike governmental plans. Non-governmental plans do not offer loan provisions due to the structure of these accounts, where the employer owns the account rather than the employee.

457(b) plan rollover options depend on the type of 457(b) retirement plan you have. Money saved in a governmental 457(b) can be rolled into other retirement accounts, such as IRAs and 401(k)s. There is no tax withholding if you leave for a new job and roll over your money into an IRA or your new employer's eligible retirement plan.

If you do not roll your distribution over and you do not take the distribution in annual installments of more than 10 years, it will be subject to 20% mandatory federal tax withholding. However, because the account is your employer's and not yours in a non-governmental 457(b), you cannot roll over funds from a non-governmental 457(b) plan into another retirement account.

Each 457(b) account must designate a beneficiary, or beneficiaries, to receive any remaining assets upon your death. Designating beneficiaries can help ensure your assets are paid per your wishes, avoid the potential costs and delays of probate, and allow non-spouse beneficiaries to receive additional tax benefits.

It is important to keep your beneficiary designations up to date, especially after major life events such as marriage, divorce, or the birth of children, to ensure your retirement assets are distributed according to your current wishes.