457(b)
A deferred compensation plan for state and local government employees and some nonprofits. Separate contribution limit from 401(k) and 403(b), and no early withdrawal penalty at separation of service.
What is a 457(b)?
A 457(b) is a retirement plan offered by state and local governments and some nonprofit employers. The key feature that sets it apart: its contribution limit is separate from the 401(k) / 403(b) limit, so employees with access to both can contribute to each up to the full amount.
Key features
- Separate contribution limit: an employee with a 401(k) or 403(b) and a 457(b) can max out both
- No early withdrawal penalty: funds can be withdrawn at any age after leaving the employer without the 10% penalty that applies to 401(k) and IRAs
- Pre-tax or Roth: many plans offer both
- Governmental vs. non-governmental: governmental 457(b) balances are held in trust for employees. Non-governmental 457(b) balances remain the employer's general asset and are at risk if the employer goes bankrupt
- Special catch-up: in the three years before normal retirement age, a 457(b) can allow a much larger catch-up contribution if the employee under-contributed in prior years
Who benefits
Public school teachers, firefighters, police officers, and state university employees often have access to a 403(b) and a 457(b) simultaneously. Using both can double the amount of tax-deferred contribution available each year.