457(b) Plan

Definition

A 457(b) is a deferred compensation plan for state and local government employees (and some tax-exempt organizations). Its most powerful feature: no 10% early withdrawal penalty once you separate from service, regardless of age.

Why it matters in retirement

For government employees planning early retirement, a 457 is arguably the best retirement account in the tax code. Funds are accessible the moment you retire — no waiting until 59½, no rule-of-55 requirement. And 457 limits stack with 401(k)/403(b) limits.

Key Numbers — 2026

Contribution limit (2026): $23,500
Age 50+ catch-up: $7,500
Special 3-yr final catch-up: Up to 2× normal
Early withdrawal penalty: None

Pros

No early withdrawal penalty after separation
Stacks with other plans
Roth option in many plans
Special last-3-years catch-up

Cons

Governmental plans only (non-gov't 457s are unfunded)
Limited to state/local employees
Investment menu can be narrow

Common mistakes

Rolling a 457 into an IRA at retirement (loses the no-penalty access)
Not contributing when you have both a 457 and 403(b) — you can max both
Ignoring the special 3-year catch-up
Confusing governmental vs non-governmental 457 rules

401(k)

A 401(k) is an employer-sponsored retirement plan that lets employees defer pre-tax (or Roth) salary into an investment account. Most employ…

403(b)

A 403(b) is a retirement plan for employees of public schools, universities, hospitals, churches, and certain nonprofits. Functionally simil…

Pension

A pension (defined benefit plan) promises a specific monthly payment for life based on years of service and final salary. Contrast with defi…

IRA

An Individual Retirement Account (IRA) is a self-directed retirement account with tax advantages. Traditional IRAs offer pre-tax contributio…

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