A 457(b) plan is a tax-deferred retirement savings plan offered to employees of state and local governments and to a limited group of managers at certain tax-exempt organizations. How a 457(b) plan works comes down to three things: you defer part of your paycheck into the account (up to $24,500 in 2026), the money grows without being taxed each year, and you can pull it out when you leave the job — without the 10% early withdrawal penalty that hits most other retirement accounts before age 59½, if your employer is a government entity.
The rules differ in important ways depending on whether the plan is a governmental 457(b) or one sponsored by a nonprofit. Most of what follows describes the governmental version, which is the one nearly all public-sector workers use.
Who Can Participate
A governmental 457(b) is open to essentially all employees of a state, county, city, or other political subdivision — police officers, firefighters, teachers, and administrative staff among them. Independent contractors doing work for a government entity may also be eligible if the plan defines them as participants.
Non-governmental 457(b) plans are much narrower. Hospitals, charities, and other tax-exempt organizations can only offer them to a select group of management or highly compensated employees. Federal law requires that limited eligibility so the plan qualifies as a “top-hat” arrangement exempt from most of ERISA’s rules. Rank-and-file nonprofit employees cannot participate.
How Much You Can Contribute in 2026
For 2026, you can defer up to $24,500 of your compensation into a 457(b), or 100% of your includible compensation if that is lower.1Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 Three catch-up provisions can raise that ceiling, but only one applies in any given year.
Age 50 Catch-Up
If you turn 50 or older during the calendar year, a governmental 457(b) lets you add an extra $8,000 in 2026, bringing your maximum to $32,500.1Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
Enhanced Catch-Up for Ages 60 Through 63
Under SECURE 2.0, participants who are 60, 61, 62, or 63 during the tax year get a higher catch-up. For 2026 it is $11,250, allowing a total contribution of $35,750.1Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 Once you turn 64, you go back to the standard $8,000.
Special Three-Year Catch-Up
Within three years of your plan’s normal retirement age, if you did not max out contributions in earlier eligible years, you can defer up to double the standard limit — $49,000 for 2026. The extra room equals your unused deferrals from prior years of eligibility, capped at one additional year’s limit.2Internal Revenue Service. Retirement Topics 457b Contribution Limits You cannot combine this with either age-based catch-up in the same year, so if both are available, compare the numbers.
Employer Contributions Count Against the Limit
Unlike a 401(k), any employer contributions to a 457(b) count toward your $24,500 cap.3Internal Revenue Service. Comparison of Governmental 457(b) Plans and 401(k) Plans If your employer puts in $3,000, your own salary deferrals are limited to $21,500.
Stacking a 457(b) With a 401(k) or 403(b)
The 457(b)’s contribution limit is calculated separately from the 401(k) and 403(b) limits. If your government employer offers both a 457(b) and a 401(k) or 403(b), you can max out both in the same year.4Internal Revenue Service. Retirement Topics 403b Contribution Limits For 2026 that is up to $24,500 into each — $49,000 total before catch-ups. This is the biggest planning advantage of the 457(b), and many workers with access to dual plans miss it.
Traditional and Roth Contributions
Most 457(b) contributions are traditional (pre-tax). The money comes out of your paycheck before federal and state income taxes are figured, lowering your taxable income for the year. Investment growth is tax-deferred, and you pay ordinary income tax when you take withdrawals.
The Roth option reverses the timing. You contribute after-tax dollars, so there is no up-front deduction, but qualified distributions — including all earnings — come out tax-free. To qualify, the Roth account must have been open at least five tax years and you must be at least 59½, disabled, or deceased.5Internal Revenue Service. Retirement Topics – Designated Roth Account Younger workers who expect their tax bracket to climb often come out ahead with the Roth.
Mandatory Roth Catch-Up for High Earners
Starting in 2026, if your wages from the employer sponsoring the plan were more than $150,000 in the prior calendar year, any catch-up contributions you make must go into the Roth side of the plan. The pre-tax catch-up is no longer an option for those workers. The $150,000 threshold is indexed for inflation. If you earned less than that from the sponsoring employer in the prior year, you can still choose traditional or Roth for catch-up dollars.
When You Can Take Money Out
The primary event that unlocks your 457(b) is separation from service — retiring, resigning, or being let go. Once you leave, you can take distributions at any age without the 10% early withdrawal penalty that applies to 401(k) and IRA withdrawals before 59½.6Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions For anyone planning to retire before 59½, this is one of the most valuable features of a governmental 457(b).
The penalty exemption does not remove income tax. Every dollar you withdraw from a traditional 457(b) is taxed as ordinary income in the year you receive it. Only qualified Roth distributions escape both the penalty and the tax. And there is a carve-out: if you previously rolled money into your 457(b) from a 401(k) or IRA, distributions of those rolled-in amounts are still subject to the 10% penalty if taken before 59½.6Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
Unforeseeable Emergency Withdrawals
Plans may allow distributions while you are still working, but only for an unforeseeable emergency, and the bar is high. You must demonstrate a severe financial hardship caused by circumstances beyond your control, and you must show that insurance, selling assets, or stopping your contributions cannot cover it.7Internal Revenue Service. Unforeseeable Emergency Distributions from 457b Plans
Qualifying events include:
- Illness or accident affecting you, your spouse, your dependents, or your beneficiary
- Casualty property loss, such as flood or fire damage not covered by insurance
- Funeral expenses for a spouse or dependent, and in some cases a non-dependent child
- Imminent foreclosure or eviction from your primary residence
Accumulated credit card debt does not qualify. The withdrawal is limited to the amount needed to cover the emergency, and the plan administrator reviews each request individually.7Internal Revenue Service. Unforeseeable Emergency Distributions from 457b Plans
Required Minimum Distributions
You must begin required minimum distributions at age 73.8Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs The first RMD is due by April 1 of the year after you turn 73, and each following year’s RMD by December 31.9Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs) If you are past 73 but still working for the government employer that sponsors your plan, you can delay RMDs from that plan until you actually retire. Old 457(b) accounts elsewhere, and any IRAs, still require distributions on schedule.
Missing an RMD triggers a penalty of 25% of the amount you should have taken. That drops to 10% if you correct the shortfall within two years.8Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
Rolling Over a 457(b)
When you leave your job, you can roll a governmental 457(b) balance into a traditional IRA, a 401(k), a 403(b), or another governmental 457(b). But moving the money into an IRA or 401(k) permanently gives up the penalty-free withdrawal advantage. Once those funds sit in an IRA, they follow IRA rules, so any withdrawal before 59½ triggers the 10% penalty you would have avoided by leaving the money in the 457(b).6Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
If you are under 59½ and might need the money, think hard before rolling over. Keeping funds in a 457(b) preserves that access.
Non-governmental 457(b) plans have tighter restrictions. Distributions from a tax-exempt employer’s plan can only be rolled into another non-governmental 457(b) — not into an IRA, 401(k), or 403(b).10Internal Revenue Service. Eligible Deferred Compensation Plans under Section 457 – Notice 2003-20
Extra Risk if Your Employer Is a Nonprofit
A non-governmental 457(b) carries a risk most participants overlook. Federal law requires these plans to remain unfunded, meaning the money you defer stays on your employer’s books as its property, not yours. If the organization goes bankrupt or loses a lawsuit, your balance is reachable by the employer’s general creditors. Some employers use a rabbi trust to hold deferred amounts, but rabbi trust assets are still reachable by creditors in a bankruptcy.11Internal Revenue Service. Non-Governmental 457(b) Deferred Compensation Plans
A governmental 457(b) is different: the law requires all plan assets to be held in trust for the exclusive benefit of participants.12Office of the Law Revision Counsel. 26 USC 457 – Deferred Compensation Plans of State and Local Governments and Tax-Exempt Organizations If you work for a nonprofit, weigh the tax deferral against the possibility, however remote, that the organization’s financial trouble could put your savings at risk.