457 Plan

A 457 plan is a retirement account available to employees of state and local governments and some nonprofits. Like a 401(k), it allows pre-tax contributions, but with unique advantages: the same contribution limit as a 401(k), plus the ability to withdraw funds upon separation from service without the typical 10% early-withdrawal penalty.

How it works

A 457 plan is a deferred compensation plan for government and some nonprofit employees. You contribute pre-tax salary (up to $23,500 for 2024), and your employer may add matching contributions. The money grows tax-deferred and is withdrawn in retirement.

The major difference from a 401(k) is the withdrawal rule: when you separate from service (retire, change jobs), you can withdraw your 457 balance without the typical 10% early-withdrawal penalty, regardless of age. This is unique and valuable.

Who can participate

• State government employees (legislators, judges, administrators).
• Local government employees (city/county workers, teachers, police, firefighters).
• Some nonprofit employees ( 457(f) plans, which have different rules).

If your employer is a state or local government agency, you are likely eligible.

457(b) vs. 457(f)

457(b) plans: For most government employees. Portable to another 457(b) plan or rolled to an IRA if you leave.

457(f) plans: For certain highly compensated nonprofit executives. Less common, with different rules on distribution.

Key advantage: penalty-free withdrawal at separation

Unlike a 401(k), where early withdrawals (before 59½) trigger a 10% penalty, a 457 allows you to withdraw without penalty if you separate from service, even if you are 35 or 40.

Example: You are a city employee, age 45, and leave your job. Your 457 balance can be withdrawn penalty-free. (Income taxes still apply, but not the 10% penalty.) This is powerful for government workers considering mid-career transitions.

Catch-up contributions

In addition to the standard $7,500 catch-up for those 50+, 457 plans allow an extra catch-up provision: in your final three years before normal retirement age, you can contribute up to twice the normal limit (up to $47,000 for 2024). This allows high savers to accelerate retirement contributions.

Portability

If you change government jobs (city to county, state to local), you can usually roll your 457(b) balance to the new employer’s 457(b) without triggering taxes or penalties.

If you leave government service entirely, you can roll the 457(b) to an IRA or, in some cases, to a 401(k).

RMD and longevity

Required minimum distributions (RMD) begin at age 73. However, if you are still working at a 457-eligible employer and do not own 5%+ of it, you may be able to defer RMDs until you actually retire.

See also