457 Retirement Plan
Understanding the 457 Retirement Plan
The 457 retirement plan is a type of tax-advantaged, deferred compensation plan made available by certain employers—primarily government and some non-governmental organizations—to their employees. This retirement savings vehicle allows employees to contribute a portion of their pretax earnings to the plan, thereby reducing their taxable income and fostering savings for retirement.
Key Features of a 457 Plan
-
Eligibility: Primarily available to state and local government employees, as well as some tax-exempt organization employees. This includes civil servants, police officers, firefighters, teachers, and certain healthcare workers.
-
Contribution Limits: As of 2023, the annual contribution limit for a 457 plan is $22,500. For those aged 50 and over, a catch-up contribution option exists, allowing for an additional $7,500 each year, bringing the total possible contribution to $30,000.
-
Catch-Up Contributions: Aside from the standard catch-up for those over 50, a special catch-up rule allows workers nearing retirement age (within three years of normal retirement age) to contribute up to twice the annual limit, thus accelerating their savings.
-
Tax Advantages: Contributions are made on a pretax basis, reducing the employee's taxable income for the year. The funds in the plan grow tax-deferred, meaning taxes don't apply until distribution, ideally at retirement when the individual might be in a lower tax bracket.
-
Withdrawals: One of the distinguishing factors of the 457 plan compared to 401(k)s and 403(b)s is that there are no early withdrawal penalties if funds are taken out before the age of 59½, provided the employee has severed ties with the employer. However, standard income taxes apply.
-
Investment Options: Typically, 457 plans offer a variety of investment choices, from mutual funds and index funds to target-date funds, allowing employees to tailor their portfolio according to their risk tolerance and retirement goals.
Differences Between 457 Plans and Other Retirement Plans
Feature | 457 Plan | 401(k) Plan | 403(b) Plan |
---|---|---|---|
Eligibility | State/local government employees, some non-profits | Private-sector employees | Employees of public schools, certain non-profits |
Contribution Penalties | No early withdrawal penalty after leaving employer | 10% penalty before 59½ | 10% penalty before 59½ |
Catch-Up Contribution | Standard + special nearing retirement | Standard for those over 50 | Standard for those over 50 |
Contribution Limits | $22,500 + $7,500 catch-up | $22,500 + $7,500 catch-up | $22,500 + $7,500 catch-up |
Frequently Asked Questions (FAQs)
Is a 457 plan better than a 401(k)?
Both plans offer unique benefits. A 457 plan allows for penalty-free withdrawals if employment ends, offering flexibility. A 401(k) typically offers more employer match opportunities, which may provide an immediate increase in savings. The best choice depends on individual circumstances and job features.
Can I contribute to both a 457 plan and a 401(k)?
Yes, if your employment situation allows access to both types of plans, you can contribute the maximum allowable limit to each, enabling significant tax-advantaged retirement savings.
What happens to my 457 plan if I change jobs?
Most 457 plans can be rolled over into an IRA or another employer's plan, like a 401(k) or 403(b), upon changing jobs. If choosing not to roll over, you can maintain the 457 account and continue to manage it even after employment ends.
Optimizing Your 457 Plan
-
Balance and Diversify: Utilize the variety of investment options in a 457 plan to create a portfolio that reflects your timeline and risk tolerance. Consider blending conservative and aggressive investments to balance growth and security.
-
Take Advantage of Catch-Up Contributions: As you approach retirement, explore the catch-up contribution options available with a 457 plan. This strategy can substantially boost your retirement savings in a relatively short period.
-
Plan Withdrawals Strategically: Although the plan offers penalty-free early withdrawals once employment ends, carefully plan when to access these funds to minimize tax impacts and ensure long-term financial stability.
Real-World Context
Consider Sarah, a public school teacher with access to a 457 plan. She contributes the maximum yearly allowable amount and can use the special catch-up option three years before her retirement. By doing so, she accelerates her savings significantly, enabling her to retire with greater financial security than if she only contributed standard limits.
Conclusion
The 457 retirement plan presents an advantageous opportunity for eligible employees to secure their financial future with a flexible, tax-advantaged savings strategy. By understanding its features, differences from other plans, and optimizing contributions, employees can effectively enhance their retirement preparedness.
For additional information and practical steps on maximizing your retirement savings, consider exploring more resources on our website that offer tailored retirement planning advice.

Related Topics
- can a 457 plan be rolled into an ira
- how do 457 plans work
- how does a 457 plan work
- is a 457 plan an ira
- what 457 plan
- what are 457 plans
- what is 457 b deferred compensation plan
- what is 457 b plan
- what is 457 b retirement plan
- what is 457 plan
- what is a 457 b deferred compensation plan
- what is a 457 b plan
- what is a 457 b retirement plan
- what is a 457 deferred comp plan
- what is a 457 deferred compensation plan
- what is a 457 pension plan
- what is a 457 plan
- what is a 457 retirement plan
- what is a roth 457 plan
- what is a section 457 plan
- what is a virginia retirement plan 457
- what is the 457 deferred compensation plan
- what's a 457 plan