What Is a 457(b) Retirement Plan?

A 457(b) retirement plan is similar to a 401(k) or 403(b) plan. It allows you to contribute part of your salary toward a retirement investment plan.

Your contributions to the retirement account are taken directly out of your paycheck. You don’t pay income taxes on the money you contribute until you withdraw money from your 457(b). With a few exceptions, you may face additional penalties if you take money out before six months after your 59th birthday.

Employers who offer 457(b) plans include state and local government agencies and certain nonprofit organizations.

A 457(b) plan is similar to a 401(k) plan or 403(b) plan. Money is taken directly from each paycheck and invested in your plan. You usually don’t pay income taxes on the money you contribute to a 457(b) plan until you withdraw it.

You are allowed to invest up to 100 percent of your salary into your 457(b) plan, so long as it does not exceed a set dollar limit. The limit, which may change from year-to-year, is set by the Internal Revenue Service. Depending on your plan, your employer may match all or a portion of your contributions.

The money you and your employer contribute to your 457(b) fund can usually be invested in either mutual funds or annuities. Your plan may offer an array of mutual funds for you to choose from. You are not taxed on interest and dividends on these investments until you withdraw the money.

There is also a related, 457(f) retirement plan for heads of nonprofit organizations that differs from a 457(b) plan.

A 457(f) plan is sometimes called “the golden handcuffs” because people can’t leave their job without having to give up all the money they’ve invested in the plan.

It’s a frequent recruitment tool for top level executives in the private sector and sometimes used to recruit top executives at nonprofit organizations as well.

The benefits you pay into this plan are held by the company or organization. They are only deposited when you fulfill a certain period of service or accomplish a preset goal for the organization.

You are limited as to how much you can contribute to a 457(b) retirement plan each year. In 2025, that is either $23,500 or 100 percent of your salary, whichever is less.

If your plan allows it, you may be able to make additional “catch-up” contributions as you near retirement age, significantly raising your contribution limit.

Unlike other retirement plans, 457(b) plans have unique catch-up contribution limits as you near retirement age. You should contact your plan administrator to find out what the rules and limits are for your plan.

A 457(b) plan allows greater flexibility in withdrawing money than 401(k) plans. For instance, you can avoid the 10 percent penalty on early withdrawals if you do so after you’ve left your employer.

But you may still incur the penalty if you are still working for your employer and wish to withdraw your money for some foreseeable expenses, such as paying off credit card debt.

The rules governing 457(b) plans do allow you to withdraw money for certain unforeseeable emergencies.

Even in these circumstances, you may have to prove that the unforeseeable emergency expense is not covered by your insurance, selling other assets or by using money you’d otherwise be contributing to the 457(b) plan.

The biggest advantage of a 457(b) plan is that you can save for retirement while getting a tax break. But there are also limitations to 457(b) plans that you should be aware of.

A government 457(b) account can also be amended to allow designated Roth contributions. In this form, you pay income taxes on the contributions you make into your plan. But you pay no taxes when you retire and start withdrawing money from the 457(b) plan.