457(b) Plan
Definition
A tax-advantaged retirement plan available to government and certain nonprofit employees, with unique rules allowing penalty-free withdrawals upon separation from service at any age.
The 457(b) is a retirement savings plan available to state and local government employees and some nonprofit workers. It shares many features with 401(k) and 403(b) plans — pre-tax or Roth contributions, employer match possibility, and similar investment options — but has one standout advantage: no early withdrawal penalty.
Unlike 401(k) plans that impose a 10% penalty for withdrawals before age 59.5, 457(b) plans allow penalty-free withdrawals upon separation from service regardless of age. A government employee who retires at 50 can immediately access their 457(b) without penalty (though income taxes still apply on pre-tax withdrawals).
The contribution limit is $23,500 for 2025 (same as 401(k)). However, 457(b) limits are separate from 401(k)/403(b) limits. Government employees who have access to both a 457(b) and a 403(b) can contribute the maximum to each — effectively doubling their tax-advantaged savings to $47,000+ per year.
The special "catch-up" provision for 457(b) plans is unique: in the three years before normal retirement age, participants can contribute up to double the annual limit ($47,000 for 2025). This is separate from the standard age-50+ catch-up. However, you can't use both the three-year and age-50 catch-up simultaneously.
Governmental 457(b) assets can be rolled over to IRAs or other qualified plans. Non-governmental 457(b) plans (offered by some nonprofits) cannot be rolled over and carry additional risk — the assets remain property of the employer and could be claimed by creditors in bankruptcy.
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Frequently Asked Questions
Is a 457(b) better than a 401(k)?
For government employees with access to both, the 457(b) has the advantage of penalty-free early withdrawals and separate contribution limits. If you can only choose one and plan to retire early, the 457(b) is better. If you'll work until 59.5+, they're functionally similar. Contributing to both is ideal if affordable.
Can I roll a 457(b) into an IRA?
Governmental 457(b) plans can be rolled into a traditional IRA, Roth IRA (with tax consequences), 401(k), or 403(b). Non-governmental 457(b) plans cannot be rolled over — a critical distinction. Always verify whether your plan is governmental or non-governmental before making rollover decisions.