Get to the Bottom of Your 457b Plan for Retirement Savings

In this article...
  • With a 457b plan, you can set aside pre-tax earnings for retirement. Learn about the advantages of investing in this type of employer-sponsored account.

Your employer might sponsor a 457b plan for retirement if you work for a nonprofit organization or for a state or government agency. This type of retirement plan is similar to the 401k plan offered by private companies.

How Does a 457b Plan Work?

If your employer offers a 457b plan, you can contribute money on a tax-deferred basis as you would with a 401k. The money comes directly out of your paycheck. Some employers that sponsor a 457b plan might also provide the option of a 403b, another type of retirement plan for government and nonprofit workers. If you leave the organization, you can roll your 457b funds into a 401k or individual retirement account (IRA).

By contributing to a 457b plan, you lower your taxable income and put off paying taxes on your retirement funds until you withdraw the money later. The IRS limits annual IRS contributions, with a maximum of $20,500 in 2022 or $27,000 if you're 50 or older that year. 

How Is a 457b Plan Different Than a 401k Plan?

You'll have more flexibility for withdrawals if you have a 457b plan. For example, you can take money out to cover financial situations such as:

  • Property loss from a natural disaster that falls outside your homeowner's insurance coverage
  • Past-due mortgage payments if your home is at risk of immediate foreclosure or eviction
  • Medical bills resulting from accident or illness
  • Funeral costs for a dependent or spouse

Most 401k plans don't allow these types of hardship withdrawals. You'll pay significant fees if you withdraw funds before you reach the age of 59 years and 6 months.

How Is a 457b Plan Different Than a 457f Plan?

With a 457f plan, you can only keep your contributions and the earnings on these funds if you keep working for the sponsoring organization. These retirement funds are rare outside of the top tier of executive compensation, so you probably won't run into this type of plan unless you become a CEO or similar.

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