What Is a 457(b) Plan?

457(b) Plans Explained


A 457(b) plan is an employer-sponsored, tax-favored retirement savings account. With this type of plan, you can contribute pre-tax dollars from your paycheck, and that money won't be taxed until you withdraw the money, usually for retirement.

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Definition and Example of a 457(b) Plan

Also known as a deferred compensation plan, a 457(b) plan is offered to state and local government employees such as police officers, firefighters, or other civil servants.

Some highly paid executives at certain nonprofits like hospitals, charities, and unions are also able to use 457(b) plans.

You can think of the 457(b) plan like a 401(k) for a government or tax-exempt organization worker, but there are a couple of unique differences that make a 457(b) even more attractive.

How Does a 457(b) Plan Work?

A 457(b) retirement plan is much like a 401(k) or 403(b) plan. A 457(b) plan is offered through your employer, and contributions are taken from your paycheck on a pre-tax basis, which lowers your taxable income.

You may be given the option of investing the contributions in mutual funds that you choose from an array of funds, while the interest and earnings aren't taxed until you withdraw the funds in retirement. Typically 457(b) plans only offer two types of investments—annuities or mutual funds—both of which are also tax-deferred.

Unlike a 401(k) or 403(b), if you leave a job or retire before age 59½ and need to withdraw your retirement funds from a 457(b), you won't pay a 10% tax penalty. This is a big distinction that makes this type of plan even more attractive than its peers.

Contribution Limits of a 457(b) Plan

Participants in a 457(b) plan can generally contribute as much as 100% of an employee's includible compensation or $19,500 for tax year 2021 ($20,500 for tax year 2022)—whichever is less.

If you're age 50 or older and your employer allows catch-up contributions, your contribution limit increases by an additional $6,500 for tax years 2021 and 2022.


There is a Special 457(b) catch-up contribution, which is twice the annual limit or the basic annual limit plus the amount of basic annual limit not used in the previous years, whichever is less.

You may be able to make higher catch-up contributions three years before retirement age if your plan permits.

This catch-up strategy allows you to contribute either twice the annual limit, up to $39,000 for tax year 2021 ($41,000 for tax year 2022), or the basic annual limit added to the basic annual limit not used in previous years. The special 457(b) catch-up contributions cannot be used in conjunction with age-50-or-over catch-up contributions.

Another benefit to 457(b) plans is that they work well with other plans. Teachers, for example, might be offered both 403(b) and 457(b) plan options. If you have a combination of two plans—a 457(b) and a 403(b) or a 457(b) and a 401(k)—you can contribute the maximum amount to both plans.

That brings your annual elective deferral limit up to $39,000 (the maximum contributions allowed for tax year 2021 for 401(k) and 457(b), added together), even if you're younger than 50. This would be $41,000 for tax year 2022. This does not include catch-up contributions or any applicable employer matching.


Contribution limits for 457(b) retirement plans typically increase periodically. Check the IRS website to find the most up-to-date information.

457(b) Plans and Employer Matching

Some employers may match the amount that you contribute to a 457(b) plan up to a certain limit. If you're lucky enough to work for such an employer, take advantage of it by contributing to the plan at least as much as the match. If the match is 50% and you put in $1,000 per month, your employer will contribute $500 per month on your behalf.

If your employer does not currently offer a 457(b), it might pay to lobby for one. As far as retirement plans are concerned, you'd be lucky to have the chance to save in a 457(b).

457(b) vs. 403(b)

How are 457(b) plans and 403(b) plans similar—and how are they different?

Both are often offered by public-sector and nonprofit organizations, which typically don't offer 401(k) plans. With both plans, you can contribute up to $19,500 for tax year 2021. The limit is $20,500 for tax year 2022. And if you're over the age of 50, you can contribute an additional $6,500.

The main difference typically has to do with who can gain access to them. 457(b) plans are usually provided to state and local government employees. 403(b) plans are mainly offered to private nonprofits and government workers, including public school employees.

Key Takeaways

  • A 457(b) plan is an employer-sponsored, tax-favored retirement savings account.
  • With 457(b) plans, you contribute pre-tax dollars, which won't be taxed until you withdraw the money.
  • A 457(b) retirement plan is much like a 401(k) or 403(b) plan.
  • Participants can generally contribute as much as 100% of an employee's includible compensation, or $19,500 in 2021 ($20,500 in 2022), whichever is less.
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  1. U.S. Securities and Exchange Commission. "Retirement Investing Through 403(b) and 457(b) Plans." Accessed Nov. 15, 2021.

  2. Internal Revenue Service. "Topic No. 558 Additional Tax on Early Distributions From Retirement Plans Other Than IRAs." Accessed Nov. 15, 2021.

  3. Internal Revenue Service. "Retirement Topics - Catch-Up Contributions." Accessed Nov. 15, 2021.

  4. Internal Revenue Service. "Retirement Topics - 457(b) Contribution Limits." Accessed Nov. 15, 2021.

  5. Internal Revenue Service. "Comparison of Tax-Exempt 457(b) Plans and Governmental 457(b) Plans." Accessed Nov. 15, 2021.

  6. Internal Revenue Service. "How Much Salary Can You Defer if You’re Eligible for More than One Retirement Plan?" Accessed Nov. 15, 2021.

  7. Internal Revenue Service. "IRS Announces 401(k) Limit Increases to $20,500." Accessed Nov. 15, 2021.

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