A 457(b) is a tax-deferred retirement plan offered by state or local governments and some nonprofits. It can help investors reduce their annual taxable income and postpone taxes until they withdraw money from their account, allowing for the power of compound growth within a tax deferred account.

This article distinguishes 457(b) plans from other retirement options and details eligibility requirements, contribution limits, and tax benefits. 

What’s a 457(b) plan?

A 457(b) is a retirement savings plan offered to certain government and nonprofit employees. Eligible workers can contribute a portion of their salary before tax deductions, which can result in a reduction of their annual taxable income. The money can grow tax-deferred until it’s withdrawn — typically in retirement — and taxed as ordinary income.

Like a 401(k), the 457(b) helps employees build long-term savings through regular payroll deductions and employer-selected investment options. A 457(b) plan also offers flexible withdrawal rules under certain conditions and unique catch-up contribution options, making it a strong complement to retirement portfolios.

Governmental vs. non-governmental 457(b) plans

Not all 457(b) plans are the same. The two main types — governmental and non-governmental — can follow different rules regarding rollovers, withdrawals, and creditor protection.

Governmental

State and local governments offer these 457(b) plans. A key benefit is that your money is held in a trust, so it legally belongs to you. In some other accounts, especially non-governmental 457(b)s, funds are considered part of the employer’s assets. If the employer faces financial trouble, creditors — people the employer owes money to — could potentially access your contributions. With a governmental 457(b), your savings are protected.

Governmental plans can also allow you to roll funds over into other retirement accounts, such as IRAs or 401(k)s.

Non-governmental

Non-governmental 457(b) plans follow different rules. Qualifying nonprofits can offer them to select employees, such as executives or highly compensated staff. Unlike governmental plans, these accounts aren’t protected from creditors — assets stay with the employer until people withdraw their retirement funds.

Rollover options are also limited. Typically, you can only transfer funds to another eligible non-governmental 457(b) plan with a similar sponsoring organization. It is important to read the terms on these as the funds in the plan could be distributed to you after you separate from service in a lump sum causing a potentially heavy tax burden. 

What’s a 457(f) plan?

A 457(f) plan is a separate plan that  may be offer to highly compensated employees. Unlike 457(b)s, the worker may have to remain with the organization for a set period — often several years — to receive the full benefit. This usually refers to the vesting period  or substantial risk of forfeiture element. 

If the employee leaves before the vesting period is up or the contingency is not met, they may lose the funds. Once they meet the requirements, the IRS can tax the account, even if distributions haven’t started.

Who qualifies for a 457(b) plan?

Not all employees are eligible for a 457(b) plan. They’re designed for people who work for the government or certain tax-exempt nonprofits.

Here are some of the most common roles that qualify.

Teachers

Public school teachers, administrators, and support staff at the state or local level often qualify for 457(b) plans through their school district or board of education. For many, a 457(b) can complements their pension and works alongside a 403(b) or traditional IRA for broader retirement planning.

First responders

Firefighters, police officers, and EMTs often have access to 457(b) plans through city or municipal governments. These plans may allow them to take advantage of early withdrawal flexibility, a key benefit in physically demanding professions that generally lead to early retirement.

City employees

Municipal workers, including administrative staff, sanitation workers, and utility employees, are typically eligible for a 457(b) plan through their city or county. Since city employees do not always  receive large pensions, contributing consistently to a 457(b) can create a valuable financial cushion for retirement.

Nonprofit staff

Nonprofits like hospitals, foundations, and trade associations may offer non-governmental 457(b) plans to highly compensated employees. Making these plans available to a wider group of workers means the plan may need to comply with the Employee Retirement Income Security Act Title I funding requirements.

457(b) contribution limits and catch-up provisions

Like other retirement plans, the IRS limits how much participants are allowed to contribute per year. Here are a few rules to keep in mind:

• Annual contribution limit: The current limit for standard (or elective) 457(b) deferrals is $23,500 per year.
• Age 50+ catch-up: Participants who are 50 or older can contribute an additional $7,500, bringing the total to $31,000.
• Special three‑year (pre‑retirement) catch‑up: Starting three years before your plan’s normal retirement age, you may be able to contribute additional funds to your 457(b). The IRS allows you to contribute double the standard limit or the unused portion of your annual contributions, whichever is less.
• Enhanced catch-up (ages 60–63): Thanks to the SECURE Act 2.0, those aged 60–63 may defer up to $11,250 extra, for a potential total of $34,750.

It’s important to note you can’t take advantage of 50+ and three-year catch-ups at the same time. The IRS recommends using whichever is higher.

457b vs. 403b vs. 401k: What’s the difference?

Depending on your job, you may have access to more than one retirement savings plan. Below are a few differences between the most common types to help you choose the best fit.

Plan sponsors

• 457(b)s are offered by state or local government agencies and some nonprofits.
• 403(b)s are available through tax-exempt organizations like public schools, colleges, and religious organizations.
• 401(k)s are typically provided by private-sector companies across various industries. But there are other options for nonstandard employers. For instance, self-employed people can open solo 401(k)s, while small businesses may offer SIMPLE 401(k)s.

Early withdrawal penalties

• 457(b)s don’t charge a 10% early withdrawal penalty for governmental plans if you have separated from service. Only ordinary income tax applies, even if you retire or switch careers before age 59½. 
• 403(b)s and 401(k)s may face income taxes and 10% IRS penalties for early withdrawals. There are a few exceptions, though, like hardship and emergency expenses.

Catch-up eligibility

• 457(b)s: Participants over 50 can invest an additional $7,500 per year. Plus, an additional catch-up allows more contributions in the final three years before normal retirement age.
• 403(b)s and 401(k)s: These plans offer a single catch-up contribution of $7,500 for those aged 50 and over in 2025. But people between 60–63 have a larger catch-up limit of $11,250 in 2025, if their plan permits.

Rollovers

• 457(b)s: If you have a governmental 457(b), you can roll the funds into another 457(b) or an IRA. Non-governmental plans have much more limited rollover options, often only letting you move funds into an identical account with a similar tax-exempt employer or withdrawing the funds as a lump sum.
• 403(b)s and 401(k)s: These plans are much more flexible. You can move funds into a range of different accounts, including IRAs and new 403(b)s or 401(k)s.

Employer match behavior

• 457(b): Employer contributions are rare, especially from government plans. But if offered, they count toward the overall contribution limit.
• 403(b) and 401(k): These plans frequently include employer matches, usually a percentage of your salary or contributions.

Withdrawal rules for 457(b) plans

One of the biggest advantages of a government 457(b) plan is that you won’t pay an early withdrawal penalty if you leave your job, no matter your age. Most other retirement plans charge a 10% penalty if you take money out before age 59½, but 457(b) plans don’t. That makes them a great option for public employees who want to retire early or switch careers.

But because withdrawals count as taxable income in the year you take them, large lump-sum distributions can push you into a higher tax bracket, increasing your overall tax bill. Many retirees choose to spread withdrawals over several years to help manage their taxable income.

Consulting a tax professional or financial advisor may be helpful if you're unsure how to time or structure withdrawals, especially if you’re also drawing income from other sources.

Are 457(b) plans subject to required minimum distributions (RMDs)?

Yes — like other tax-deferred retirement accounts, 457(b) plans are subject to RMDs starting at age 73 (or 75, depending on your birth year). You could face a steep tax penalty if you don’t begin withdrawing the required amount. 

But if you’re still working for the employer sponsoring your 457(b) plan past RMD age, you may be able to delay distributions until retirement.

Maximize your retirement savings with Gainbridge 

457(b) plans help public employees and nonprofit professionals build their retirement savings. But like any retirement vehicle, a 457(b) plan works best when it’s part of a broader strategy.

That’s where Gainbridge comes in. Our annuity products can grow tax-deferred and may provide guaranteed income for life, which could help your retirement planning. And since we don’t charge hidden fees or commissions, you can hold on to more of your hard-earned savings.

Learn how Gainbridge’s innovative annuities grow with you.

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This article is intended for informational purposes only. It is not intended to provide, and should not be interpreted as, individualized investment, legal, or tax advice. For advice concerning your own situation please contact the appropriate professional. The GainbridgeⓇ digital platform provides informational and educational resources intended only for self-directed purposes.