Roth IRA vs. 457(b) Retirement Plan: What’s the Difference?

It's More Than Just Taxes

A person at a desk, thinking about retirement savings

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A Roth IRA is an individual retirement plan that features tax-free distributions. Roth IRAs are available to everyone based on their tax filing status and income. A 457(b) retirement plan is sponsored by an employer and contributions are tax-deferred. These types of plans are only available to employees of state and local governments and certain tax-exempt organizations.

If your employer offers a 457(b) plan, you may also be able to take advantage of a Roth IRA. Learn the differences between these two retirement savings accounts and what they mean for you.

What’s the Difference Between a Roth IRA and a 457(b) Plan?

Roth IRA 457 Plan
Available to all taxpayers Only available to employees of state and local governments and certain tax-exempt organizations
Maximum annual contribution is $6,000 (or $7,000 if you’re 50 or older) Maximum annual contribution by employer and employee is $20,500
Contributions are taxable; qualified distributions are tax-free Contributions are tax-deferred; distributions are taxable
No required minimum distributions Required minimum distributions begin at age 72
Can invest in anything except collectibles and life insurance Participants select from a menu of mutual funds and/or annuities


Roth IRAs are individual retirement plans, and they’re available to anyone who wants to open one. 

In contrast, 457(b) plans are only available to employees of state and local governments, and to top executives or highly paid employees of organizations that qualify as tax exempt, such as registered charities.

Annual Contribution Limits

In 2022, you can contribute up to a total of $6,000 to all your IRAs, including a Roth IRA. If you’re over age 50, you can contribute up to $7,000. However, this amount may be reduced based on your modified adjusted gross income. If you’re married and file jointly, the threshold is $208,000, and for single filers, it’s $140,000.

If you have a 457(b) plan, you can contribute up to the lesser of $20,500 or your total compensation in 2022. Governmental 457(b) participants over age 50 can contribute an additional $6,500 in catch-up contributions.


Participants in a 457(b) plan can also contribute to other employer-sponsored plans, such as a 401(k), up to the maximum the plan allows.


You won’t get a tax deduction for contributing to a Roth IRA. However, you will see a tax advantage later, when you take distributions. Roth IRA distributions are tax-free, including all of the interest and investment gains, as long as you don’t take them before age 59½ or within five years of opening the account.


If you take distributions from your Roth IRA before age 59½ or within the first five years of the plan, you may be subject to a 10% penalty tax.

Contributions to a 457(b) plan are tax-deferred. They’re considered “pre-tax” because they aren’t included in your taxable income. As your 457(b) account grows, the gains and interest aren’t taxed. However, distributions from a 457(b) plan are taxable. There is no penalty tax for 457(b) plan distributions before age 59½.

Required Minimum Distributions

All employer-sponsored retirement plans, such as 457(b) plans, have required minimum distributions (RMD) at age 72. Traditional IRAs also have RMDs. The amount of your RMD is based on your age and account balance from the previous year.

A big advantage of Roth IRAs is that they have no RMDs while the owner is alive.

Investment Options

Roth IRAs are very flexible. You can invest in anything, including cryptocurrency, except collectibles and life insurance. Some examples of collectibles include:

  • Artwork
  • Rugs
  • Antiques
  • Metals, except certain kinds of bullion
  • Gems
  • Stamps
  • Coins, with exceptions
  • Alcoholic beverages such as wine or scotch

Participants in a 457(b) plan may select from a menu of mutual funds and/or annuities that have been selected by the plan administrator.

Which Is Right for You?

The good news is that you don’t have to choose between a 457(b) plan and a Roth IRA. If your employer offers a 457(b), you can participate in the plan and contribute to a Roth IRA. Here are some things to consider as you plan your retirement savings strategy.

Tax Rates Today vs. Tax Rates at Retirement

Roth IRAs work best when tax rates will be higher when you retire than they were when you contributed. While you don’t pay tax on the distributions, you do pay tax on your contributions. If you think you’ll be in a lower tax bracket at retirement than you are now, the pre-tax 457(b) may be a better choice.

How Much Can You Contribute?

If you can’t contribute the maximum allowed to a Roth IRA, the 457(b) may be a better choice. When you contribute to a Roth IRA, you have less money available to invest because you’re paying income tax on the money before you contribute it. The additional money invested in a pre-tax 457(b) plan could compound into a significant difference over time.

The Bottom Line

Employer-sponsored plans like 457(b)s are often the best way to maximize your retirement savings. If you’re already contributing the maximum to your traditional retirement plans and want to boost your savings, or you’re concerned about paying higher tax rates in the future, a Roth IRA could be an attractive alternative.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. IRS. “Publication 590-A (2021), Contributions to Individual Retirement Arrangements (IRAs),” See “Can You Contribute to a Roth IRA?”

  2. IRS. “Retirement Topics - 457(b) Contribution Limits.”

  3. IRS. “Retirement Topics - Catch-Up Contributions.”

  4. IRS. “Publication 590-B (2020), Distributions From Individual Retirement Arrangements (IRAs),” See “2. Roth IRAs” and “Are Distributions Taxable?”

  5. IRS. “IRA FAQs,” See “Investments.”

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