A 457(b) is a retirement savings account for government and nonprofit employees
A 457(b) deferred compensation plan is a retirement account offered by state and local government agencies, the federal government, and certain tax-exempt organizations. It lets you set aside money from your paycheck before taxes are taken out, so the money grows tax-deferred until you withdraw it in retirement. The account is held in your name, and your employer does not own it — you do.
The main difference between a 457(b) and a 401(k) is who offers it. A 401(k) is for employees of private companies. A 457(b) is for public sector workers. The contribution limits, tax treatment, and withdrawal rules are similar in structure but differ in important ways.
Your employer sets up the plan and chooses the investment options available to you — typically mutual funds, stable value funds, or self-directed brokerage accounts. You decide how much to contribute each pay period, and your employer deducts that amount from your gross pay before calculating income tax.
Key Takeaways
- A 457(b) is only available through government agencies or certain nonprofits, not private employers.
- You contribute pre-tax dollars, which lowers your taxable income for the year and lets your money grow without annual tax bills.
- The 2024 contribution limit is $23,500 per year, or $35,250 if you are age 50 or older and your plan allows catch-up contributions.
- You can withdraw money without the 10% early withdrawal penalty that applies to 401(k)s, but you still owe income tax on the withdrawal.
- If you leave your job, you can roll your 457(b) balance into an IRA or another employer plan, or leave it where it is.
How contributions and tax treatment work
When you enroll in a 457(b), you choose a percentage of your paycheck to contribute. That amount comes out before federal income tax is calculated, which means your taxable income for the year is lower. If you earn $60,000 and contribute $10,000 to your 457(b), you only report $50,000 as taxable income to the IRS.
You do not pay income tax on the money you contribute or on the investment earnings while the money sits in the account. You pay tax only when you withdraw the money, usually after you retire. This is called tax-deferred growth. If your balance grows to $300,000 by the time you retire, you do not owe tax on that $300,000 until you start taking it out.
Your employer may also contribute to your account — this is called a match. Some government employers match a percentage of what you contribute, similar to a 401(k) match. Check your plan documents or ask your benefits office whether your employer offers a match and what the terms are.
Annual contribution limits for 2024
For 2024, you can contribute up to $23,500 per year to a 457(b). This is the same limit as a 401(k). If you are age 50 or older by the end of the year, you can contribute an additional $7,750 in catch-up contributions, for a total of $31,250 — but only if your plan document allows catch-up contributions. Not all 457(b) plans offer this option, so check with your employer.
Some 457(b) plans also allow a special catch-up in the last three years before your normal retirement date. This lets you contribute up to twice the annual limit in those final years, but you cannot combine this with the age-50 catch-up. Your plan administrator can tell you whether this option is available and when you become may be able to access.
These limits change each year. The IRS adjusts them for inflation and announces the new amounts in October for the following year. Your employer should notify you of any change to the limit.
When you can withdraw money without penalty
One of the largest differences between a 457(b) and a 401(k) is the early withdrawal rule. With a 401(k), if you withdraw money before age 59½, you owe a 10% penalty on top of income tax. With a 457(b), there is no 10% penalty for early withdrawal — you only owe income tax.
However, you can only withdraw money from a 457(b) when you have a severance from employment — meaning you leave your job — or when you reach your plan's normal retirement age. You cannot withdraw money straightforward because you want to, even if you are over 59½. If you try to withdraw before severance or retirement age, the plan will reject the request.
Once you leave your job or reach retirement age, you can take the money out in a lump sum, in installments over a set period, or in equal payments for life. The choice depends on your plan and your situation. You will owe income tax on whatever you withdraw that year.
What happens to your 457(b) if you change jobs
If you leave a government or nonprofit job where you had a 457(b), you have several options for the money in that account. You can leave it in the plan and let it continue to grow, even though you no longer work there. Many people do this if they plan to retire soon and want to keep the money invested.
You can also roll over your 457(b) balance into an IRA or into a 457(b) plan at your new employer if your new employer offers one. A rollover moves the money directly from one account to another without you touching it, so you avoid taxes and penalties. If you roll into an IRA, you gain more investment choices but lose the ability to borrow against the account (some 457(b) plans allow loans).
If you roll the money into a new 457(b) at a different government employer, the balance keeps its tax-deferred status and the same withdrawal rules explore. You cannot roll a 457(b) into a 401(k), because they are separate plan types, but you can roll a 401(k) into a 457(b) in some cases — check with your new employer's plan administrator.
Loans and hardship withdrawals
Some 457(b) plans allow you to borrow against your own balance. If your plan offers loans, you can typically borrow up to 50% of your vested balance, up to a maximum of $50,000. You repay the loan through payroll deductions, usually over five years. If you leave your job before the loan is repaid, you must pay back the remaining balance or it becomes a taxable withdrawal.
Hardship withdrawals are also available in some plans. These let you withdraw money before severance or retirement if you face an when ready and heavy financial need — such as medical bills, home repairs, or funeral expenses. The rules for what counts as a hardship vary by plan. Your plan administrator can tell you whether hardship withdrawals are available and what documentation you need to provide.
How a 457(b) differs from other retirement accounts
| Feature | 457(b) | 401(k) | Traditional IRA |
|---|---|---|---|
| Who offers it | Government and nonprofit employers | Private employers | You open it yourself |
| 2024 contribution limit | $23,500 ($31,250 with catch-up) | $23,500 ($30,500 with catch-up) | $7,000 ($8,000 with catch-up) |
| Early withdrawal penalty | No 10% penalty, but income tax applies | 10% penalty plus income tax before 59½ | 10% penalty plus income tax before 59½ |
| When you can withdraw | At severance or retirement age | At severance, age 59½, or hardship | At age 59½ or hardship |
| Loans allowed | Yes, in some plans | Yes, in some plans | No |
Required minimum distributions in retirement
Once you reach age 73, the IRS requires you to withdraw a minimum amount from your 457(b) each year. This is called a required minimum distribution (RMD). The amount is calculated based on your age and your account balance at the end of the previous year. If you do not take the RMD, you owe a penalty of 25% of the amount you should have withdrawn (as of 2023; this may change).
However, if you are still working at age 73 and your plan allows it, you may be able to delay RMDs until you actually retire. This is called the still-working exception. Check with your plan administrator to see whether your plan allows this delay.
The RMD rules are the same for 457(b)s, 401(k)s, and traditional IRAs. If you have money in multiple accounts, you calculate the RMD for each account separately, but you can withdraw the total from any one account if you prefer.
Frequently Asked Questions
Can I contribute to both a 457(b) and a 401(k) in the same year?
Yes, if you have both accounts. The contribution limits are separate, so you can contribute $23,500 to a 457(b) and $23,500 to a 401(k) in the same year. However, if you work for a government employer that offers both a 457(b) and a 403(b), the limits may be combined — ask your benefits office.
What happens to my 457(b) if I die before I retire?
Your beneficiary — the person you named when you opened the account — inherits the balance. They can roll it into an IRA in their own name, take it as a lump sum, or receive it in installments, depending on the plan and their relationship to you. The money is still subject to income tax when withdrawn, but there is no penalty.
Can I withdraw money from my 457(b) to pay off debt?
You cannot withdraw money straightforward to pay debt unless your plan allows hardship withdrawals and your debt qualifies as an when ready financial hardship. Most plans define hardship narrowly — medical bills, home repairs, or funeral expenses — not general debt. Contact your plan administrator to ask whether your situation qualifies.
Is my 457(b) protected if my employer goes bankrupt?
Yes. A 457(b) is held in trust for you, separate from your employer's assets. Even if your government agency or nonprofit faces financial trouble, your 457(b) balance belongs to you and cannot be seized by creditors. The money is protected the same way a 401(k) is.
Do I pay state income tax on 457(b) withdrawals?
Yes, in most states. You pay federal income tax on withdrawals, and you also pay state income tax if your state has an income tax. Some states offer tax breaks for retirement income, but the rules vary. Check your state's tax website or ask a tax professional about whether withdrawals from your 457(b) are taxed at the state level.