How to Use a 457(b) Plan If Your Employer Offers One

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A 457b retirement plan is one of the most underutilized retirement tools available to state and local government employees, as well as workers at certain non-profit organizations. As of July 2025, the IRS allows contributions up to $23,500 per year in a 457(b) account, with a special catch-up provision that can double that limit in the three years before your normal retirement age. If your employer offers this plan, knowing how to use it correctly can meaningfully accelerate your path to retirement.

Interest in 457(b) plans has grown as more workers in the public sector seek ways to supplement their pensions and Social Security income. With traditional pension guarantees under pressure in many states, financial planners increasingly recommend maxing out all available tax-advantaged accounts — and the 457(b) is often the most overlooked. According to the National Association of State Retirement Administrators, millions of public employees have access to supplemental deferred compensation plans but fewer than one in three actively participates.

This guide is for government employees, teachers, firefighters, social workers, hospital staff, and other public sector workers whose employers offer a 457(b). By the end, you will know how to enroll, how much to contribute, how to invest your money wisely, and how to withdraw funds without triggering unnecessary taxes or penalties.

Step 1: What Exactly Is a 457(b) Retirement Plan and Who Qualifies?

A 457(b) retirement plan is a tax-advantaged deferred compensation plan offered to employees of state and local governments and certain non-profit organizations under Section 457(b) of the Internal Revenue Code. You qualify if your employer — such as a city, county, school district, public university, or qualifying 501(c)(3) non-profit hospital — sponsors the plan and makes it available to you.

Who Is Eligible for a 457(b)?

Eligibility depends entirely on your employer. Most governmental 457(b) plans are open to all full-time employees, though some plans restrict access to management or highly compensated employees at non-governmental organizations. Check with your HR or benefits department to confirm your eligibility status.

There are two types of 457(b) plans: governmental and non-governmental. Governmental plans are sponsored by state, county, or municipal employers and hold assets in trust for participants. Non-governmental plans are offered by tax-exempt organizations like private hospitals and are structured differently, with fewer protections.

What to Watch Out For

If you work for a tax-exempt non-profit (not a government entity), your 457(b) is considered an “unfunded” plan. This means the assets remain on the employer’s balance sheet until distributed, exposing them to creditor claims if the organization goes bankrupt. Government employees do not face this risk.

Step 2: How Do I Enroll in My Employer’s 457(b) Plan?

Enroll in your 457(b) by contacting your HR or benefits department to obtain enrollment forms, then selecting your contribution amount and investment options. Most employers make enrollment available year-round, though some restrict changes to open enrollment periods in the fall.

How to Do This

Follow these steps to get enrolled:

1. Ask your HR department for the 457(b) plan documents, including the Summary Plan Description (SPD).
2. Identify your plan’s administrator — common providers include Fidelity Investments, TIAA, Voya Financial, and Nationwide Retirement Solutions.
3. Complete the enrollment form, either online through the plan provider’s portal or on paper through HR.
4. Set your contribution as either a fixed dollar amount or a percentage of your gross pay.
5. Choose your beneficiary designations carefully — this is legally binding.
6. Select your investment allocations from the available fund menu.

Many plan administrators now offer online enrollment portals that take less than 20 minutes to complete. If your employer uses Voya Financial or Fidelity NetBenefits, you can typically start and finish enrollment in a single session.

What to Watch Out For

Some employers have a waiting period — often 30 to 90 days from your hire date — before you can enroll. Missing an enrollment window can delay your participation by up to a year at some organizations. Set a calendar reminder to re-check eligibility if you are initially turned away.

Step 3: How Much Should I Contribute to My 457(b) Each Year?

Contribute as much as you can afford, starting with at least enough to capture any employer match, and work toward the annual IRS maximum of $23,500 in 2025. If you are within three years of your plan’s normal retirement age, you may be eligible for the special catch-up provision, which can allow up to $47,000 per year.

How to Do This

Use this tiered approach to set your contribution level:

• Tier 1 — Capture any employer match: Contribute at minimum whatever percentage your employer matches, if applicable.
• Tier 2 — Fund your emergency reserve first: Make sure you have 3–6 months of expenses saved before contributing beyond the match. See our step-by-step guide on how to build a 6-month emergency fund.
• Tier 3 — Max out your 457(b): In 2025, that is $23,500. If you are 50 or older, add the $7,500 age-based catch-up for a total of $31,000.
• Tier 4 — Stack other accounts: If you also have access to a 403(b) or IRA, you can max out those accounts on top of your 457(b) contributions.

The special 457(b) catch-up provision is unique and powerful. In the three years before your plan’s designated normal retirement age, you can contribute the lesser of twice the annual limit ($47,000 in 2025) or the sum of the current year’s limit plus unused limits from prior years. This rule does not require you to be age 50 — it is based solely on proximity to your plan’s retirement age.

What to Watch Out For

You cannot use both the age-50 catch-up and the special pre-retirement catch-up in the same year. You must choose whichever produces the higher contribution amount. Your plan administrator can help you calculate which option applies. For a broader look at annual limits, review the 401(k) contribution limits for 2026 as a comparison baseline.

These limits are set by the IRS and typically adjust upward each year for inflation. Always verify the current year’s limits directly with the IRS 457(b) contribution limits page before finalizing your deferral election.

Step 4: How Do I Choose the Right Investments Inside My 457(b)?

Choose your investments based on your age, risk tolerance, and how many years you have until retirement — and default to low-cost index funds whenever available. Most 457(b) plans offer a menu of mutual funds, target-date funds, and sometimes stable value or fixed annuity options.

How to Do This

Start with these guidelines when selecting your investment mix:

• If you are more than 20 years from retirement, consider an aggressive allocation with 80–90% in equity funds (stock-based index funds).
• If you are 10–20 years from retirement, a balanced allocation of 60–70% equities and 30–40% bonds is a common starting point.
• If you are within 10 years of retirement, shift toward capital preservation with 40–50% in bonds or stable value funds.
• Look for funds with low expense ratios — aim for under 0.20% annually. High fees compound negatively over decades.
• A target-date fund (e.g., a “2040 Fund”) handles rebalancing automatically and is a solid default for most employees who prefer simplicity.

Many 457(b) plans administered by TIAA or Voya Financial include a mix of actively managed and index funds. Favor index funds tracking broad benchmarks like the S&P 500 or the Total U.S. Stock Market. For a beginner’s introduction to index fund investing, our guide on the best index funds for beginners covers the essentials.

What to Watch Out For

Some 457(b) plans, particularly older governmental plans, only offer annuity products with high internal fees. If your only options have expense ratios above 0.75%, speak with your HR department about requesting a broader fund lineup. The Investment Company Institute reports that even a 1% difference in annual fees can reduce a retirement portfolio’s ending value by more than 20% over 30 years.

Step 5: Should I Use a 457(b) Instead of a 403(b) or 401(k)?

Use your 457b retirement plan in addition to — not instead of — any other employer-sponsored plan you qualify for. Because the IRS treats 457(b) contributions as separate from 401(k) and 403(b) limits, you can maximize all of them simultaneously for substantially greater tax-sheltered savings.

How to Do This

If your employer offers both a 457(b) and a 403(b), the optimal strategy for most employees is:

1. Contribute to the 403(b) or 401(k) first if your employer offers a match on that plan.
2. Max out the 457(b) next — especially because of its superior early withdrawal rules.
3. Then return to maximize the 403(b) or 401(k) up to the annual IRS cap.
4. If funds remain, contribute to a Roth IRA or Traditional IRA up to the current year’s limit.

The 457(b)’s greatest edge over a 401(k) is its early withdrawal flexibility. If you leave your employer before age 59½, you can access 457(b) funds without the 10% penalty that applies to 401(k) and 403(b) accounts. This makes the 457(b) especially valuable for employees who may retire early or change jobs. For a detailed comparison of IRA account types to consider alongside your 457(b), see our breakdown of Roth IRA vs. Traditional IRA options.

What to Watch Out For

The early withdrawal advantage of the 457(b) comes with a caveat: distributions are still subject to ordinary income tax, just not the 10% penalty. You must plan carefully to avoid a large tax bill in the year you withdraw. Spreading distributions across multiple years can keep you in a lower tax bracket.

Step 6: How Do I Withdraw Money from My 457(b) Without Paying a Penalty?

You can withdraw from a governmental 457b retirement plan at any age after you separate from your employer — with no 10% early withdrawal penalty, regardless of your age at separation. Withdrawals are taxed as ordinary income in the year received, so timing matters significantly.

How to Do This

There are several valid triggering events for a 457(b) distribution:

• Separation from service: You leave your employer (including retirement, resignation, or layoff) at any age.
• Reaching age 72: Required Minimum Distributions (RMDs) must begin at age 73 under the SECURE 2.0 Act signed in December 2022.
• Unforeseeable emergency: A severe financial hardship like a sudden illness, accident, or casualty loss may qualify for an early distribution.
• De minimis distributions: If your account balance is below $5,000 and you have not made contributions in at least two years, the plan may allow a lump-sum distribution.

To initiate a withdrawal, contact your plan administrator directly — either through their online portal or by calling their participant services line. You will need to complete a distribution request form and choose a distribution method: lump sum, periodic payments, or a rollover to an IRA or other qualified plan.

What to Watch Out For

Withdrawals are taxable income. If you take a large lump sum in a single year, you could push yourself into a higher federal income tax bracket. A strategy called 72(t) SEPP (Substantially Equal Periodic Payments) does not apply to 457(b) plans the way it does to IRAs, so plan your withdrawal schedule carefully with a qualified financial planner or CPA.

Frequently Asked Questions

Can I contribute to a 457(b) and a 403(b) at the same time?

Yes, you can contribute the maximum amount to both a 457(b) and a 403(b) simultaneously, because the IRS treats them as separate plans with independent contribution limits. In 2025, this means you could defer up to $47,000 between the two accounts — or more if you qualify for catch-up contributions. This is one of the most powerful tax-sheltering strategies available to public school teachers, hospital workers, and other government employees who have access to both plan types.

What happens to my 457(b) if I leave my job before retirement?

If you leave your employer, you can leave your 457(b) balance in the plan if the plan allows it, roll it over to an IRA or another employer’s eligible plan, or take a distribution without the 10% early withdrawal penalty that applies to 401(k) accounts. Keep in mind that rolling a governmental 457(b) into a traditional IRA means future early withdrawals from that IRA will be subject to the standard 10% penalty. Always compare your options before moving the money.

Does a 457(b) have required minimum distributions?

Yes, a 457(b) plan is subject to Required Minimum Distributions (RMDs) starting at age 73 under the SECURE 2.0 Act rules. This applies whether or not you have separated from your employer, unless you are still actively working for the plan sponsor and are not a 5% owner of the organization. Failing to take RMDs results in a 25% excise tax on the amount not withdrawn.

Is a 457(b) better than a Roth IRA for retirement savings?

A 457(b) and a Roth IRA serve different purposes and are most powerful when used together. A 457(b) reduces your taxable income today (pre-tax) and allows much higher annual contributions ($23,500 vs. $7,000 for a Roth IRA in 2025), while a Roth IRA provides tax-free growth and tax-free withdrawals in retirement. If you expect to be in a higher tax bracket in retirement than you are today, prioritizing the Roth IRA or a Roth 457(b) option makes sense. Our full comparison of Roth IRA vs. Traditional IRA breaks down the decision in detail.

Can I take a loan from my 457(b) plan?

Some governmental 457(b) plans allow participant loans, but not all of them do — it depends on whether your specific plan document permits it. If loans are allowed, you can typically borrow up to the lesser of $50,000 or 50% of your vested account balance, and the loan must be repaid within five years. Unlike a 401(k) loan, failing to repay a 457(b) loan results in the outstanding balance being treated as a taxable distribution.

What is the difference between a governmental and non-governmental 457(b)?

A governmental 457(b) holds assets in a trust that is legally separate from the employer, which protects participant funds from employer creditors. A non-governmental 457(b) — offered by tax-exempt organizations like private non-profit hospitals — holds assets on the employer’s general balance sheet, meaning participants could lose their savings if the employer becomes insolvent. Governmental 457(b) participants also have the option to roll their accounts over to an IRA upon separation; non-governmental plan participants generally do not.

Can I use a 457(b) if I already have a pension from my government job?

Absolutely — a pension and a 457(b) are completely independent of each other, and contributing to both is one of the best retirement strategies for public employees. Your pension replaces a portion of your pre-retirement income, but rarely covers 100% of your needs, especially with healthcare costs in retirement. The 457(b) supplements your pension with a personal savings cushion you control. Many financial advisors recommend that public employees treat their 457(b) as their flexible retirement income bucket alongside their pension.

Should I choose the pre-tax or Roth option for my 457(b)?

Choose the Roth 457(b) option if you expect your income tax rate to be higher in retirement than it is today — for example, if you are early in your career or expect a large pension to push you into a higher bracket at retirement. Choose the pre-tax option if you are in a high tax bracket now and want the immediate deduction. If your employer offers both options, splitting contributions between pre-tax and Roth 457(b) is a sound tax diversification strategy. For a detailed tax comparison, see our guide to Roth vs. Traditional IRA, as the same logic applies here.

How do I find out if my employer offers a 457(b) plan?

Ask your HR or benefits department directly — the question to ask is: “Does our employer offer a 457(b) deferred compensation plan?” If you work for a state or local government agency, school district, public university, or eligible non-profit, there is a good chance a plan exists. You can also check your employee benefits portal or review your new-hire paperwork for references to a deferred compensation or supplemental retirement savings plan.