Terry Turner, writer and researcher for RetireGuide
  • Written by
    Terry Turner

    Terry Turner

    Senior Financial Writer and Financial Wellness Facilitator

    Terry Turner has more than 35 years of journalism experience, including covering benefits, spending and congressional action on federal programs such as Social Security and Medicare. He is a Certified Financial Wellness Facilitator through the National Wellness Institute and the Foundation for Financial Wellness and a member of the Association for Financial Counseling & Planning Education (AFCPE®).

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  • Edited By
    Lee Williams
    Lee Williams, senior editor for RetireGuide.com

    Lee Williams

    Senior Financial Editor

    Lee Williams is a professional writer, editor and content strategist with 10 years of professional experience working for global and nationally recognized brands. He has contributed to Forbes, The Huffington Post, SUCCESS Magazine, AskMen.com, Electric Literature and The Wall Street Journal. His career also includes ghostwriting for Fortune 500 CEOs and published authors.

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  • Financially Reviewed By
    Ebony J. Howard, CPA
    Ebony J. Howard, CPA

    Ebony J. Howard, CPA

    Credentialed Tax Expert at Intuit

    Ebony J. Howard is a certified public accountant and freelance consultant with a background in accounting, personal finance, and income tax planning and preparation.  She specializes in analyzing financial information in the health care, banking and real estate sectors.

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  • Published: September 14, 2020
  • Updated: October 20, 2023
  • 6 min read time
  • This page features 5 Cited Research Articles
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How to Cite RetireGuide.com's Article

APA Turner, T. (2023, October 20). What Is a 457(b) Retirement Plan? RetireGuide.com. Retrieved July 15, 2024, from https://www.retireguide.com/retirement-planning/investing/accounts/457b/

MLA Turner, Terry. "What Is a 457(b) Retirement Plan?" RetireGuide.com, 20 Oct 2023, https://www.retireguide.com/retirement-planning/investing/accounts/457b/.

Chicago Turner, Terry. "What Is a 457(b) Retirement Plan?" RetireGuide.com. Last modified October 20, 2023. https://www.retireguide.com/retirement-planning/investing/accounts/457b/.

Key Takeaways
  • A 457(b) plan is similar to a 401(k) retirement account. However, 457(b) plans are only offered by state and local government agencies and certain nonprofit organizations.
  • There are limits set by the Internal Revenue Service (IRS) defining how much you can contribute to a 457(b) retirement plan each year.
  • 457(b) plans offer greater flexibility in withdrawing money when compared to 401(k) plans. For example, 457(b) rules allow you to withdraw your money early for specific scenarios like covering the funeral expenses of a spouse or dependent, paying for illness or accident bills and accessing money to stop imminent foreclosure, to name a few.

What Is a 457(b)?

A 457(b) retirement plan is similar to a 401(k) or 403(b) plan. It allows you to contribute part of your salary toward a retirement investment plan.

Your contributions to the retirement account are taken directly out of your paycheck. You don’t pay income taxes on the money you contribute until you withdraw money from your 457(b). With a few exceptions, you may face additional penalties if you take money out before six months after your 59th birthday.

Employers who offer 457(b) plans include state and local government agencies and certain nonprofit organizations.

Did You Know?
Some employers offer both a 403(b) and a 457(b) retirement plan. You are able to enroll in and contribute to both. Check with your employer to see if both plans are available to you.

How Does a 457(b) Plan Work?

A 457(b) plan is similar to a 401(k) plan or 403(b) plan. Money is taken directly from each paycheck and invested in your plan. You usually don’t pay income taxes on the money you contribute to a 457(b) plan until you withdraw it.

Different Retirement Plans Benefit Workers in Different Sectors
401(k) Plans
You are most likely to have access to a 401(k) plan if you work for a for-profit organization.
403(b) Plans
A 403(b) plan is an option for public school and university employees and people who work for certain nonprofit organizations. It may be offered along with a 457(b) plan.
457(b) Plans
A 457(b) plan is most often provided to employees of state and local governments. Employers may also offer a 403(b) plan.

You are allowed to invest up to 100 percent of your salary into your 457(b) plan, so long as it does not exceed a set dollar limit. The limit, which may change from year-to-year, is set by the Internal Revenue Service. Depending on your plan, your employer may match all or a portion of your contributions.

The money you and your employer contribute to your 457(b) fund can usually be invested in either mutual funds or annuities. Your plan may offer an array of mutual funds for you to choose from. You are not taxed on interest and dividends on these investments until you withdraw the money.

457(b) vs. 457(f) Plans

There is also a related, 457(f) retirement plan for heads of nonprofit organizations that differs from a 457(b) plan.

A 457(f) plan is sometimes called “the golden handcuffs” because people can’t leave their job without having to give up all the money they’ve invested in the plan.

It’s a frequent recruitment tool for top level executives in the private sector and sometimes used to recruit top executives at nonprofit organizations as well.

The benefits you pay into this plan are held by the company or organization. They are only deposited when you fulfill a certain period of service or accomplish a preset goal for the organization.

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457(b) Plan Contribution Limits and Early Withdrawal Penalties

You are limited as to how much you can contribute to a 457(b) retirement plan each year. In 2024, that is either $23,000 or 100 percent of your salary, whichever is less.

If your plan allows it, you may be able to make additional “catch-up” contributions as you near retirement age, significantly raising your contribution limit.

457(b) Plan Contribution Limits
SituationAdditional “Catch-up” AmountTotal Contribution Limit
Up to age 50None$22,500
50 and older$7,500$30,000

Unlike other retirement plans, 457(b) plans have unique catch-up contribution limits as you near retirement age. You should contact your plan administrator to find out what the rules and limits are for your plan.

Early Withdrawal Penalties and Exceptions

A 457(b) plan allows greater flexibility in withdrawing money than 401(k) plans. For instance, you can avoid the 10 percent penalty on early withdrawals if you do so after you’ve left your employer.

But you may still incur the penalty if you are still working for your employer and wish to withdraw your money for some foreseeable expenses, such as paying off credit card debt.

The rules governing 457(b) plans do allow you to withdraw money for certain unforeseeable emergencies.

Situations That Allow Early 457(b) Plan Withdrawals Without Penalties
  • Funeral expenses for your spouse or dependents
  • Illness or accident involving you, your beneficiary or your beneficiary’s spouse or dependents
  • Imminent foreclosure or eviction from your primary residence
  • Property loss caused by natural disaster not covered by your or your beneficiary’s homeowner’s insurance
  • Unforeseen medical and prescription expenses
  • Other major unforeseeable hardships resulting from events beyond your control

Even in these circumstances, you may have to prove that the unforeseeable emergency expense is not covered by your insurance, selling other assets or by using money you’d otherwise be contributing to the 457(b) plan.

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Pros and Cons of 457(b) Plans

The biggest advantage of a 457(b) plan is that you can save for retirement while getting a tax break. But there are also limitations to 457(b) plans that you should be aware of.

Advantages & Disadvantages of 457(b) and 457(k) Plans
If you are within three years of the plan’s retirement age, you can double your “catch-up” contributions (for total contributions of $45,000 per year in 2023).Few state and local governments – the main providers of 457(b) plans – provide matching contributions.
If you leave your job, you can rollover your 457(b) account into either an IRA or a 401(k) plan.If your employer matches your contribution, that money counts toward the typical total contribution limit of $22,500 for 2021.
Taxes on your contributions, interest and dividends are deferred until you withdraw money.The maximum annual limit for contributions is $45,000 (including all catch-up contributions); far below the limit for total 401(k) contributions.
Unlike 401(k) and 403(b) plans, if you leave your employer, you can make early withdrawals without paying a 10 percent penalty.If you have a 457(k) plan, and leave your job before two years is up, you forfeit all the money in the plan.

A government 457(b) account can also be amended to allow designated Roth contributions. In this form, you pay income taxes on the contributions you make into your plan. But you pay no taxes when you retire and start withdrawing money from the 457(b) plan.


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Last Modified: October 20, 2023

5 Cited Research Articles

  1. U.S. Internal Revenue Service. (2020, April 16). Unforeseeable Emergency Distributions from 457(b) Plans. Retrieved from https://www.irs.gov/retirement-plans/employee-plans-news-december-17-2010-unforeseeable-emergency-distributions-from-457b-plans
  2. U.S. Internal Revenue Service. (2019, December 4). IRC 457(b) Deferred Compensation Plans. Retrieved from https://www.irs.gov/retirement-plans/irc-457b-deferred-compensation-plans
  3. U.S. Internal Revenue Service. (2019, November 12). Retirement Topics - 457(b) Contribution Limits. Retrieved from https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-457b-contribution-limits
  4. Moore, S. (2019, February 16). What Makes a 457(b) Plan Different. Retrieved from https://www.forbes.com/sites/simonmoore/2019/02/16/what-makes-a-457b-plan-different/#37429f3d5ad6
  5. U.S. Securities and Exchange Commission. (n.d.). 403(b) and 457(b) Plans. Retrieved from https://www.investor.gov/additional-resources/retirement-toolkit/employer-sponsored-plans/403b-and-457b-plans