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Discover 457b retirement plans. Rules, benefits, and how they may secure your financial future.

457(b) Plans: What It Is, Rules and Benefits

Disclaimer: This website and its content are for informational purposes only and is not financial advice.

What Exactly is a 457(b) Retirement Plan?

At its core, a 457(b) retirement plan is a non-qualified, tax-deferred retirement savings plan primarily offered by state and local governments, as well as certain tax-exempt organizations.

Unlike some other retirement plans that are subject to specific ERISA (Employee Retirement Income Security Act) rules, 457(b) plans have distinct characteristics that make them particularly appealing for their target audience.

Contributions to a 457(b) plan are made on a pre-tax basis, meaning they come directly from your paycheck before income taxes are calculated. This immediate tax benefit can significantly reduce your current taxable income.

The money you contribute, along with any earnings it generates, grows tax-deferred until you begin making withdrawals, typically in retirement. This deferral of taxes allows your investments to potentially grow more rapidly over time through the power of compounding.

Who is Eligible for a 457(b) Retirement Plan?

Eligibility for a 457(b) retirement plan is generally restricted to employees of state and local government entities, such as cities, counties, public schools, and public hospitals.

It is also available to employees of some tax-exempt organizations, though the rules can differ slightly between governmental and non-governmental 457(b) plans. If you work for one of these eligible employers, there's a good chance a 457(b) plan could be a valuable addition to your retirement strategy.

It’s important to note that even within eligible organizations, employers are not always required to offer a 457(b) plan to all employees; specific classes of employees might be excluded.

Rules and Contributions for a 457(b) Plan

Understanding the rules governing a 457(b) retirement plan is essential for maximizing its potential. For 2025, the standard contribution limit for a 457(b) plan is $23,500. This is the maximum amount you can contribute through salary deferrals in a single year. This limit is subject to change annually based on IRS adjustments, so it's always wise to confirm the most current figures.

Beyond the standard limit, 457(b) plans offer unique catch-up contribution provisions designed to help you save even more as you approach retirement.

There are two primary types of catch-up contributions:

The Age 50 Catch-Up: If you are age 50 or older by the end of the calendar year, you are generally allowed to contribute an additional amount to your 457(b) plan. For 2025, this age 50 catch-up contribution is $7,500, bringing your total potential contribution to $31,000.

The Special 457(b) Pre-Retirement Catch-Up: This is a distinctive feature of the 457(b) plan, available in the three years immediately preceding your planned normal retirement age.

This provision allows you to contribute up to twice the standard annual limit in those specific years, provided you haven't contributed the maximum allowed in previous years.

This can significantly boost your retirement savings in a concentrated period. It is important to remember that you cannot utilize both the age 50 catch-up and the special pre-retirement catch-up in the same calendar year; you must choose the option that allows for the greatest contribution.

Additionally, for 2025, a new age-based catch-up applies for employees aged 60-63, allowing for an additional $11,250 contribution beyond the normal limit, bringing the total to $34,750 for those eligible.

Updated May 31st, 2025

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The Advantages of a 457(b) Retirement Plan

A 457(b) retirement plan offers several compelling benefits:

• No Early Withdrawal Penalty (Upon Separation from Service): Unlike 401(k)s and 403(b)s, distributions from a 457(b) plan generally aren't subject to a 10% penalty if you leave your job, regardless of your age. This flexibility can be valuable, though traditional 457(b) withdrawals are still subject to income taxes.

• Potential for Tax Diversification: While traditional 457(b) plans offer pre-tax contributions, some governmental 457(b) plans also have a Roth option. Roth 457(b) contributions are made with after-tax dollars, but qualified withdrawals in retirement are tax-free, offering tax flexibility.

• Significant Savings Potential: You can often contribute to both a 457(b) and another employer-sponsored plan (like a 401(k) or 403(b)), significantly increasing your annual retirement savings capacity and accelerating your path to financial independence.

Understanding Distributions and Rollovers

When accessing funds from your 457(b) retirement plan, it's important to know the rules:

• Withdrawal Flexibility: As noted, you can generally access funds without a 10% early withdrawal penalty upon separation from service, though income taxes still apply to traditional 457(b) distributions.

• Required Minimum Distributions (RMDs): Traditional 457(b) plans are subject to RMDs, meaning you'll typically need to start withdrawals by age 73. However, if you're still working for the employer sponsoring your governmental 457(b) plan, you might be able to delay RMDs until you retire.

• Rollover Options: Governmental 457(b) plans generally allow rollovers into other qualified retirement plans, such as a 401(k), 403(b), or an IRA, which can be useful if you change jobs or want to consolidate accounts. Non-governmental 457(b) plans usually have more restrictive rollover rules. Always consult your plan administrator or a financial advisor about your specific rollover options.

Key Takeaways

A 457(b) retirement plan can be a cornerstone of your retirement strategy, especially for public service professionals. Its tax-deferred growth, higher contribution limits through catch-up provisions, and flexible withdrawal rules make it a valuable asset.

To maximize benefits, contribute as much as you can, especially if you're eligible for catch-up contributions. Regularly review your investment options to ensure they align with your goals.

A qualified financial advisor can offer personalized guidance on how a 457(b) plan fits into your overall financial picture and how to best leverage its features for a secure retirement.

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