If you work for a state or local government, a public school system, or certain tax-exempt organizations, you may have access to a 457(b) plan, also called a deferred compensation plan. It works much like a 401(k), but it has a few features that make it unusually flexible, including penalty-free withdrawals after you leave your job and the ability to contribute on top of a 403(b) or 401(k). This guide explains how 457(b) plans work and how to use them well.
Who offers 457(b) plans
There are two main types:
- Governmental 457(b) plans, offered by state and local governments, including police and fire departments, public universities, and municipalities
- Non-governmental 457(b) plans, offered by certain tax-exempt organizations, such as hospitals and charities, usually only to a select group of management or highly compensated employees
The rules differ significantly between the two, as discussed below.
2026 contribution limits
According to the IRS, for 2026:
- Elective deferral limit: $24,500, up from $23,500 in 2025
- Age 50+ catch-up (governmental plans): $8,000, for a total of $32,500
- Ages 60 to 63 catch-up (governmental plans): $11,250 instead of $8,000, for a total of $35,750
Beginning in 2026, employees whose prior-year FICA wages from the employer exceeded the threshold set under SECURE 2.0 ($150,000 for 2026, as indexed) must make age-based catch-up contributions as Roth contributions if the plan offers them.
The special 457(b) catch-up
457(b) plans have a unique special catch-up for the three years before the plan’s normal retirement age. During that window, you may be able to contribute up to twice the annual limit, or $49,000 in 2026, if you under-contributed in prior years. The extra amount is limited to the unused contribution room from earlier years.
You cannot use both the special catch-up and the age-50 catch-up in the same year. You use whichever gives the higher limit.
Combining a 457(b) with a 403(b) or 401(k)
This is one of the most powerful features. The 457(b) limit is separate from the limit for 401(k) and 403(b) plans. If your employer offers both a 403(b) and a 457(b), you can contribute the full limit to each. In 2026, that means up to $49,000 of elective deferrals before catch-ups, potentially much more with catch-ups.
For example, a 55-year-old public school teacher could contribute $32,500 to a 403(b) and $32,500 to a governmental 457(b) in 2026, for $65,000 total, if their salary allows.
Withdrawals: no 10% early penalty
In most retirement plans, withdrawals before age 59½ face an additional 10% tax unless an exception applies. Distributions from a governmental 457(b) plan are generally not subject to the 10% additional tax, even if you are younger than 59½, once you separate from service. You still owe ordinary income tax on pre-tax amounts.
Important exception: money rolled into a 457(b) from a 401(k), 403(b), or IRA keeps its original rules and may be subject to the 10% additional tax if withdrawn early.
This feature makes the 457(b) valuable for people who plan to retire before 59½, such as public safety workers.
Withdrawals while still employed
Generally, you cannot take money out while still working for the employer before reaching a certain age, except for:
- Unforeseeable emergencies, such as severe financial hardship from illness, accident, or property loss
- In-service distributions permitted by the plan after reaching age 59½
- Small account distributions, if the plan allows them for inactive small balances
Plans may also offer loans.
Required minimum distributions
457(b) plans are subject to required minimum distributions starting at the applicable age under current law, currently age 73 for many people, though it is scheduled to rise to 75 for those born in 1960 or later. Governmental plan participants who are still working for the employer may be able to delay RMDs until retirement if the plan allows.
Roth 457(b)
Many governmental 457(b) plans offer a Roth option. Roth contributions are made after tax, and qualified distributions are tax-free if you meet the five-year rule and are 59½ or older, disabled, or deceased. Roth 457(b) accounts are no longer subject to lifetime RMDs starting in 2024 under SECURE 2.0.
Governmental vs. non-governmental plans
| Feature | Governmental 457(b) | Non-governmental 457(b) |
|---|---|---|
| Who can participate | Generally all employees | Usually select management or highly paid employees |
| Asset protection | Held in trust for participants | Assets belong to employer, subject to its creditors |
| Rollovers | Can roll to IRAs and other plans | Generally only to another non-governmental 457(b) |
| Age-50 catch-up | Available | Not available |
| Roth option | Often available | Not available |
If you have a non-governmental plan, consider the employer’s financial strength, because your deferred money could be lost if the employer becomes insolvent. Distribution elections may also need to be made in advance and can be inflexible.
Investment options and fees
457(b) plans offer menus of investment options, often target-date funds, index funds, and stable value funds. Some older plans include annuity products with higher fees. Review expense ratios and recordkeeping fees, and choose low-cost options when possible.
Rolling over a 457(b)
When you leave your job, you may leave money in the plan, roll it to an IRA, or roll it to another employer plan. Before rolling a governmental 457(b) into an IRA, consider that you will lose the penalty-free early withdrawal feature for that money. If you plan to retire before 59½, keeping funds in the 457(b) can be valuable.
An example
Suppose a 50-year-old firefighter plans to retire at 55. She contributes $32,500 a year to her governmental 457(b) for five years. When she retires at 55, she can begin withdrawals right away without the 10% additional tax, paying only ordinary income tax. If she had saved the same amount in a 401(k) from a private employer, she could also use the age-55 separation exception for that plan, but a 457(b) offers penalty-free access regardless of age at separation.
How much should you contribute?
A common starting point is to save enough across all workplace plans to reach a total retirement savings rate of around 15% of income, including any employer contributions, though the right amount depends on your pension, age, and goals. Many public employees also have a defined benefit pension, which can reduce how much they need to save personally. If you have a pension, review your estimated benefit and use the 457(b) to fill the gap between the pension and your income goals.
Coordinating with Social Security
Some public employees do not pay into Social Security through their government job. The Social Security Fairness Act, signed in January 2025, repealed the Windfall Elimination Provision and Government Pension Offset, which had reduced Social Security benefits for many people with non-covered pensions. Check your Social Security statement to see how your benefits look now.
Related reading: Backdoor Roth IRA: Step-by-Step Rules, the Pro-Rata Trap, and Reporting on Form 8606 and Solo 401(k): Contribution Rules for Self-Employed Savers.
Frequently Asked Questions
What is the 457(b) contribution limit for 2026?
$24,500, plus $8,000 for those 50 and older, or $11,250 for ages 60 to 63, in governmental plans.
Can I contribute to both a 457(b) and a 403(b)?
Yes. The limits are separate, so you can contribute the full amount to each.
Is there a penalty for early 457(b) withdrawals?
Governmental 457(b) distributions after separation are generally not subject to the 10% additional tax, except for amounts rolled in from other plan types.
What is the 457 special catch-up?
In the three years before normal retirement age, you may contribute up to double the limit if you under-contributed in prior years.
Are non-governmental 457(b) plans risky?
The assets remain subject to the employer’s creditors, so they could be lost if the employer becomes insolvent.
This article is for general informational purposes only and is not legal, medical, tax, or financial advice. Rules vary by state and change over time; confirm details with the relevant agency or a licensed professional.
