What Is a 457 Plan?

What Is a 457 Retirement Plan?

A 457 plan is an employer-sponsored retirement plan. There are two types: 457(b) and 457(f). A 457(b) plan is the most common type and is designed for state and local government workers and employees of certain tax-exempt nonprofit organizations. It functions similarly to a 401(k), where employees and employers may contribute pretax dollars, subject to annual limits. Contributions grow tax-deferred until withdrawal.

A 457(f) plan is a less common type of nonqualified deferred compensation plan generally reserved for highly compensated executives and key employees. When people refer to a "457 plan," they're typically referring to the 457(b) plan, which is the focus of this article.

How Does a 457(b) Plan Work?

A 457(b) plan is a type of retirement savings account for employees of state and local governments and some types of nonprofits. Here's a closer look at how these plans work.

Deferred Taxes

A traditional 457(b) plan offers tax-deferred growth, meaning you generally won't pay taxes on contributions or investment earnings while the money remains in the account. Contributions are typically made with pretax dollars, which can lower your taxable income for the year. You pay ordinary income taxes when you withdraw the money in retirement.

Roth 457(b) contributions, by contrast, are made with after-tax dollars and can be withdrawn tax-free if certain requirements are met.

No 10% Early Withdrawal Penalty

With most retirement accounts, you owe a 10% penalty plus ordinary income tax on withdrawals you make before age 59½. But 457(b) plans make an exception. If you no longer work for the plan sponsor, you can withdraw funds from a governmental 457(b) plan before age 59½ without the normal 10% penalty.

Note: If you rolled money into the account from a 401(k), 403(b) or IRA, those amounts are subject to the penalty if withdrawn early. And you'll still owe ordinary income tax on any withdrawals.

Who Can Contribute

Employers and employees can contribute to 457(b) plans, but all contributions combined count toward the same annual limit. The base limit is $24,500 in 2026, and participants 50 and older can make catch-up contributions (explained more in detail below). Unlike a 401(k), there isn't a separate bucket for 457(b) employer matching contributions.

Investment Options

Plan participants can choose how their funds are invested, typically from a menu of investments such as mutual funds and target-date funds. Account growth depends on investment performance.

Who Is Eligible for a 457 Plan?

Eligibility for a 457(b) plan depends on your employer. These plans are most commonly offered to employees of state and local governments, though some tax-exempt organizations also sponsor them.

Government Employees

Many state and local government employees are eligible to participate in a 457(b) plan, including:

• Police officers
• Firefighters
• Public school teachers
• State employees
• County and municipal workers
• Public university employees
• Library employees
• Emergency medical personnel
• Judges and court employees

Certain Nonprofit Employees

Some nonprofit organizations also offer 457(b) plans to employees.

457 Plan Contribution Limits

Contribution limits are the maximum amount of money you can put in a retirement account each year under IRS rules. The 457(b) plan has several rules surrounding contribution limits.

Base and Catch-Up Contribution Limits

For the 2026 tax year, the base contribution limit on 457(b) plans is $24,500. Workers ages 50 to 59 can contribute an additional $8,000 per year as catch-up contributions. The annual catch-up amount rises to $11,250 for workers ages 60 to 63.

Catch-Up Limits for High Earners

The SECURE 2.0 Act brought new changes to 457(b) catch-up contributions for some high-earning individuals. Beginning in 2026, if you're at least 50 years old and earned more than $145,000 in the previous year, then your 457(b) catch-up contributions must go into a Roth account. Roth contributions are made with after-tax dollars. If you fall into this category and your 457(b) plan doesn't offer a Roth option, then you won't be able to make catch-up contributions.

Special Catch-Up Contribution Limits

The 457(b) plan has a unique feature called the special catch-up, which is available during the three years before your normal retirement age. This special catch-up allows you to contribute up to double the regular annual limit, subject to unused deferrals from prior years. The SECURE 2.0 Act did not require these contributions to go into a Roth.

457(b) vs. 403(b) vs. 401(k)

The 457(b), 403(b) and 401(k) are all tax-advantaged employer-sponsored retirement plans that can help you save for your golden years. A few key differences help set these plans apart.

Is a 457 Plan Worth It?

A 457(b) plan can be a valuable retirement savings tool if you're eligible for one through your employer. It may be worth contributing to a 457(b) plan in the following situations:

• You want to retire early. Governmental 457(b) plans allow penalty-free withdrawals after you leave your employer, regardless of your age, making them especially attractive for early retirees.
• You want to supercharge your retirement savings. A 457(b) can provide another opportunity to save on a tax-advantaged basis. In some cases, you may be able to contribute to both a 457(b) and another type of retirement account, effectively doubling your annual retirement contributions.
• You're in a high tax bracket. Traditional 457(b) contributions can lower your taxable income today, which helps lower your tax bill. With Roth contributions, you won't lower your tax bill now, but you'll have tax-free income in retirement.
• You're approaching retirement. Like other retirement plans, you can make catch-up contributions to increase your retirement savings. Special provisions with 457(b) plans allow you to contribute even more during the three years before your normal retirement age.

Frequently Asked Questions

The Bottom Line

A 457(b) plan can be a powerful retirement savings tool for eligible workers. In addition to offering tax advantages and flexible investment options, governmental 457(b) plans provide unique benefits such as penalty-free withdrawals after separation from service and special catch-up contribution rules.

If you have access to a 457(b), consider how it fits alongside your other retirement accounts. Depending on your goals, contributing to a 457(b) could help you boost your savings and build greater financial security for retirement.