A Roth 457 plan lets you contribute after-tax money now and withdraw it tax-free in retirement

A Roth 457 plan is a retirement savings account offered by some state and local government employers. You put money into it after you've already paid income tax on it. When you withdraw that money in retirement — along with any growth it earned — you pay no federal income tax on any of it. This is the opposite of a traditional 457 plan, where contributions reduce your taxable income now but withdrawals are taxed later.

Not all government employers offer a Roth 457. Your employer either has one or doesn't. If your agency's benefits office doesn't mention it, you can ask directly whether a Roth option exists alongside your traditional 457 plan.

Key Takeaways

  • Roth 457 contributions come from your paycheck after taxes, so they don't lower your current tax bill the way traditional 457 contributions do.
  • You can withdraw your original contributions at any time without penalty, but earnings withdrawals before age 59½ usually trigger a 10 percent penalty plus income tax.
  • The contribution limit for 2024 is $23,500 per year for most workers, the same as a traditional 457, and you can contribute to both types in the same year as long as your combined total doesn't exceed the limit.
  • Roth 457 plans have no required minimum distributions during your lifetime, so you can leave the money untouched if you don't need it.
  • You must have earned income to contribute, and your employer must offer the Roth option — you cannot open one on your own.

How contributions and withdrawals work differently than a traditional 457

When you contribute to a traditional 457, that money comes out of your paycheck before federal income tax is calculated, which lowers your taxable income for the year. A Roth 457 contribution comes out after taxes have already been withheld. Your take-home pay is smaller, and your taxable income for the year stays the same.

The trade-off appears at withdrawal time. With a traditional 457, you pay income tax on every dollar you withdraw. With a Roth 457, you pay nothing — not on the contributions you made, and not on the investment earnings those contributions generated. This makes a Roth 457 valuable if you expect to be in a higher tax bracket in retirement, or if you straightforward want to know exactly what your after-tax retirement income will be.

You can withdraw your original Roth 457 contributions anytime without penalty, even before retirement. The earnings on those contributions are a different story: if you withdraw earnings before age 59½, you'll owe a 10 percent early withdrawal penalty plus income tax on the earnings themselves.

Contribution limits and whether you can use both types

The IRS sets one annual contribution limit that applies to your combined traditional and Roth 457 contributions. For 2024, that limit is $23,500. If you contribute $10,000 to a Roth 457 and $13,500 to a traditional 457 in the same year, you've hit the limit. You cannot exceed it by splitting between the two types.

Some employers allow you to split your contributions however you want — say, 60 percent to Roth and 40 percent to traditional. Others require you to choose one type or the other. Check with your benefits office about what your employer permits.

If you're age 50 or older, you can make an additional catch-up contribution of $7,500 in 2024, bringing your total possible contribution to $31,000. This catch-up limit also applies across both plan types combined.

Required minimum distributions and leaving money untouched

A traditional 457 requires you to begin withdrawing money at age 73 (as of 2023; this age increases slightly each year under current law). A Roth 457 has no required minimum distribution requirement during your lifetime. You can leave the full balance in the account and let it grow, or withdraw only what you need.

This flexibility is one reason some workers prefer a Roth 457: if you don't need the money, you're not forced to take taxable distributions. Your beneficiaries will inherit the account, though they will face their own withdrawal rules depending on their relationship to you and when you pass away.

Who is may be able to access and how to set one up

You must work for a state or local government employer that offers a Roth 457 plan. You cannot open a Roth 457 on your own or through a private employer. If your agency offers one, you typically enroll during your initial benefits enrollment period or during the annual open enrollment window, just as you would for health insurance or a traditional 457.

You need earned income to contribute — the money must come from your salary or wages. If you're a part-time employee, you can still contribute as long as you have compensation from your employer. Once you're enrolled, contributions are usually deducted automatically from your paycheck.

Your employer may also offer matching contributions to a Roth 457, though this is less common than matching on a traditional 457. If your employer does match, ask your benefits office whether the match goes into your Roth account or a separate traditional account.

Tax treatment of employer matches and rollovers

If your employer contributes matching funds to your Roth 457, those employer contributions are treated as traditional (pre-tax) contributions, not Roth contributions. This means when you withdraw the employer match portion, you'll owe income tax on it, even though the rest of your account is Roth. Your benefits office should track these amounts separately so you know which portion is which.

You can roll a Roth 457 balance into a Roth IRA when you leave your job, but the rules are strict. The money must go directly from your 457 plan to the IRA — you cannot take it as a check and deposit it yourself, or you'll trigger taxes and penalties. You also cannot roll a Roth 457 into a traditional IRA. Work with your plan administrator and your IRA custodian to may support the rollover is done correctly.

Common reasons to choose a Roth 457 over a traditional 457

A Roth 457 makes sense if you believe your tax rate will be higher in retirement than it is now. If you're early in your career and in a low tax bracket, paying taxes on contributions now and withdrawing tax-free later can save you money overall. It also appeals to workers who want predictability: you know exactly how much after-tax income you'll have from your 457 in retirement.

A Roth 457 is also useful if you want to leave money to heirs. Your beneficiaries inherit the account tax-free (though they must follow withdrawal rules), whereas a traditional 457 inheritance triggers income tax on distributions. If you don't need your full 457 balance in retirement, a Roth lets you pass more wealth to your family without tax consequences.

Finally, a Roth 457 removes the pressure of required minimum distributions. If you have other retirement income and don't need your 457 money, you can straightforward leave it alone and let it compound.

Frequently Asked Questions

Can I withdraw my Roth 457 contributions before retirement without penalty?

Yes. You can withdraw the money you personally contributed at any time without a 10 percent early withdrawal penalty. However, you will still owe income tax on any earnings that came from those contributions if you withdraw them before age 59½. Your plan administrator can tell you how much of your balance is contributions versus earnings.

What happens to my Roth 457 if I leave my job?

You can leave the money in the account if your balance is above a certain threshold (usually $5,000, though this varies by plan). You can also roll it into a Roth IRA or another Roth 457 if you move to a different government employer. If you withdraw the money as a lump sum, you'll owe income tax on any earnings, plus a 10 percent penalty if you're under 59½.

Can I contribute to both a Roth 457 and a Roth IRA in the same year?

Yes. The contribution limits are separate. Your 457 limit ($23,500 in 2024) does not affect your Roth IRA limit ($7,000 in 2024). However, Roth IRA contributions have income limits based on your filing status and modified adjusted gross income, so high earners may not be able to contribute to a Roth IRA at all.

Do I have to pay taxes on Roth 457 earnings when I withdraw them?

Only if you withdraw earnings before age 59½. If you wait until 59½ or later and have held the account for at least five tax years, earnings come out tax-free. If you withdraw earnings early, you owe income tax plus a 10 percent penalty on the earnings portion only — your original contributions still come out tax-free.

What if my employer doesn't offer a Roth 457?

You cannot open one independently. Your only option is to contribute to the traditional 457 if your employer offers it, or to a Roth IRA or traditional IRA if you meet the income requirements. Some employers add a Roth 457 option over time, so you can ask your benefits office whether one might become available in the future.