What Is a 457(b) Plan? Retirement Savings for Government and Nonprofit Workers

If you work for a state or local government, a public school, or certain nonprofits, you may have access to a 457(b) plan alongside — or instead of — a 401(k). It works similarly to a 401(k) on the way in, but has one major advantage on the way out.

How a 457(b) Works

You contribute pre-tax (or Roth, if your plan allows) money directly from your paycheck, it grows tax-deferred, and you're taxed on withdrawals in retirement — just like a traditional 401(k) or 403(b). The 2025 contribution limit is $23,500, plus a $7,500 catch-up if you're 50+.

The Big Difference: No 10% Early Withdrawal Penalty

This is the feature that sets a 457(b) apart. With a 401(k) or IRA, withdrawing before age 59½ usually triggers a 10% early withdrawal penalty on top of income tax. With a governmental 457(b), once you separate from your employer — at any age — you can withdraw funds and pay only ordinary income tax, no penalty.

• Useful for people planning to retire early, before 59½
• Also useful if you simply leave the job, even without retiring
• Applies to governmental 457(b) plans; non-governmental 457(b) plans for nonprofit employees have different, generally less favorable rules

457(b) vs. 401(k)/403(b): Can You Have Both?

Yes. If your employer offers a 457(b) alongside a 401(k) or 403(b), the contribution limits are separate — meaning you could contribute up to the limit in each plan in the same year, effectively doubling your tax-advantaged savings space.