A Guide to 457(b) Retirement Plans

A 457(b) plan is an employer-sponsored, tax-deferred retirement savings vehicle available to some state and local government employees. It works like a 401(k) in that employees can divert a portion of their pay to their retirement account. This provides an immediate tax break by reducing participants’ taxable income. There are a number of rules that come with 457(b) plans, though. These include contribution limits, rollover rules, withdrawal rules and more.

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How 457(b) Retirement Plans Work

Many public employees have the option of saving for retirement in a 457(b) plan. In particular, 457(b)s are most common with state and local government employees, including:

Police officers
Firefighters
Paramedics
Public school teachers
Municipal employees, like sanitation workers
Government officers

Eligible employees can opt to have money taken out of each paycheck and stashed in a 457(b) retirement account. Their take-home pay will shrink by the amount they contribute to the 457(b), meaning that their tax burden will also be lower.

The money in a 457(b) grows tax-deferred over time. When the participant retires and starts to take distributions from their account, those distributions come with regular income taxes.

Similar to how IRAs and 401(k)s come in a Roth variation, though, there are also Roth 457(b)s. This option lets you save after-tax dollars. To be clear, that means you won’t get a reduction on your taxable income now. However, you will get the advantage of tax-free distributions in retirement.

Unlike a Roth IRA, which can you can open without the consent or participation of an employer, the Roth 457(b) requires employer sponsorship. Further, not everyone who has access to a 457(b) has access to a Roth version. If you can’t use a Roth account but want to diversify your tax risk in retirement, you may consider opening a Roth IRA through a brokerage.

Contribution Limits for a 457(b) Account

For 2026, the 457(b) contribution limit is $24,500 (up from $23,500 in 2025) or 100% of the participant’s compensation, whichever is less. There is an optional catch-up contribution limit of $7,500 for those 50 or older.

Starting in 2025, the IRS began allowing participants between ages 60 to 63 to contribute an extra $11,250 to their 457(b) or similar workplace retirement account. The larger catchup contributions, a provision of the SECURE 2.0 Act, enable eligible participants to save up to $35,750.

Additionally, employees who are within three years of retirement age as specified in the plan can make special 457(b) catch-up contributions. The amount of these contributions will vary from employee to employee.

But what if your employer offers a 457(b) and another retirement plan? In that case, you can contribute to the two plans simultaneously, doubling your retirement contributions in the process.

One more IRS rule: If you were saving through a 401(k) at, say, a private company, and then became a public school teacher with a 457(b) in the same year, your total contributions across both plans can’t top $24,500 for 2026.

Distribution Rules for a 457(b) Account

When it comes to withdrawals, 457(b) plans have a big advantage over 403(b)s and 401(k)s. They do not come with early withdrawal penalties if you leave your job. So, if you need to tap into your 457(b) contributions before you reach age 59 ½ and you’ve left the job that provided you with the 457(b), don’t fret. You will still, however, need to pay regular income taxes on that money.

By contrast, withdrawals from 401(k) and 403(b) accounts are taxed as regular income, in addition to a 10% early withdrawal penalty. This combination will deprive you of a significant portion of your payout. Ideally, you would let your retirement savings grow and mature in a 401(k) or 403(b), waiting to draw them until you reach retirement age.

The only exception to the above is the rule of 55. This dictates that 401(k) and 403(b) account holders who quit, are fired or are laid off during or after the year they turn 55 can make withdrawals penalty-free.

Comparing 457(b)s to Other Retirement Plans

One key advantage of 457(b) plans over 401(k)s and 403(b)s is the absence of early withdrawal penalties. As long as you’ve separated from the employer sponsoring the plan, you can access your funds without the usual 10% penalty.

457(b) vs. 401(k)

Both 457(b) and 401(k) plans are defined contribution retirement accounts. However, 401(k) plans are designed for private-sector employees, while 457(b)s are available primarily to state and local government workers. If you have a 457(b), switching to a 401(k) typically requires changing jobs.

457(b) vs. 403(b)

457(b) and 403(b) plans are more alike, and some public employees may have access to both. The biggest distinction comes at the time of withdrawal. If you leave your job and need to access funds, a 457(b) allows penalty-free withdrawals, regardless of age. A 403(b), on the other hand, imposes a 10% early withdrawal penalty if you take out money before age 59 ½.

Contribution Limits

While 401(k) and 403(b) plans share the same elective deferral limits, 457(b)s operate under slightly different rules. In a 457(b), both employee and employer contributions count toward the annual contribution limit. Employer contributions do not count toward the annual limit for 401(k)s and 403(b)s. This difference may impact how much you can save, depending on employer policies.

Rollover Rules for a 457(b) Account

You can roll over a 457(b) into any other retirement account. The IRS breaks down what types of accounts you can roll over into what. For a 457(b) account, you can roll it over to pretty much any type of IRA account, a qualified plan or a 403(b) account. You cannot roll it over into a Roth account that isn’t an IRA (such as a Roth 401(k)). To roll over the account to a Simple IRA, you would need to wait two years.

If you’re looking to complete a rollover, pick a new plan and ask the new provider to give you tips on how to initiate the rollover. Your new provider will be able to help you navigate the bureaucracy that comes with getting your money and rolling it over. More importantly, by doing this, you should be able to avoid tax penalties.

How to Maximize a 457(b) When You Have Multiple Retirement Plans

Public sector employees are in a relatively rare position, as many have access to both a 457(b) and another retirement plan, like a 403(b) or a defined benefit pension. How you use those plans together matters more than how much you contribute to any one of them.

The 457(b)’s most distinctive feature is that contributions from both the employee and employer count toward the annual limit. In contrast, employer contributions to a 401(k) or 403(b) do not reduce what the employee can add. This means the effective contribution ceiling may be lower in a 457(b) than it first appears if your employer is also putting money in. Factoring that in before deciding how to split contributions across plans can prevent an unpleasant surprise at tax time.

For employees who also have a defined benefit pension, the calculation shifts. A pension that replaces a meaningful portion of pre-retirement income in retirement reduces the need to accumulate a large investment portfolio separately. That does not mean skipping the 457(b), but it does mean the urgency and the target balance look different than they would for someone without guaranteed retirement income. The 457(b) may be better used as a supplement for discretionary spending or as a tax management tool, rather than the primary retirement vehicle.

The 457(b)’s penalty-free withdrawal feature after leaving a job makes it particularly valuable for anyone considering early retirement. If your plan is to stop working before age 59½, the 457(b) may be worth prioritizing over a 403(b) specifically because of that flexibility. The 403(b) imposes a 10% early withdrawal penalty in most cases, while the 457(b) does not. This means the 457(b) can serve as a more accessible bridge between your last paycheck and other retirement income sources.

If your employer offers both a traditional and a Roth version of the 457(b), the choice depends largely on where your income is expected to land in retirement. Public employees with a pension, Social Security and 457(b) distributions may find themselves in a higher tax bracket in retirement than anticipated. This can make Roth contributions more attractive, even at the cost of the current-year tax deduction.

Bottom Line

A 457(b) plan provides a unique retirement savings option for public sector employees. This savings options offers tax-deferred growth, flexible withdrawal rules and the potential for additional contributions near retirement. While it shares similarities with 401(k) and 403(b) plans, its penalty-free withdrawals after leaving a job and distinct contribution structure set it apart. Employees with access to multiple plans may have opportunities to maximize their retirement savings, depending on employer policies.

Tips for Your Retirement Plan

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