A 457(b) plan is a type of tax-advantaged retirement savings plan mainly offered to state and local government employees, and sometimes nonprofit workers. It lets you put aside part of your salary on a pre-tax basis (and sometimes after-tax with a Roth option), which grows tax-deferred until you take it out at retirement.
Think of it as similar to a 403(b) plan or a 401a plan, but with a few unique features that make it attractive for public employees.
What is a 457(b) Retirement Plan and How Does it Work?
A 457(b) retirement plan works by allowing employees to defer a portion of their salary into an investment account. That money is deducted before taxes (unless you use a Roth option), which lowers your taxable income today.
When you retire or leave your job, you can withdraw the money. Withdrawals are taxed like regular income, unless it’s Roth contributions (then they’re tax-free, if conditions are met).
This is why many government workers see a 457(b) deferred compensation plan as a solid way to grow retirement savings.
457(b) Deferred Compensation Plan
The term 457(b) deferred comp plan simply means you’re deferring (postponing) some of your current pay into retirement savings. Unlike tracking regular hours or accrued leave on your paycheck, this money is taken before you see it in your net pay.
Some employers also offer a 457(b) top hat plan, which is a special type designed for a select group of highly compensated employees.
Maximum Contribution to a 457(b) Plan
For 2025 and 2026, the IRS sets contribution limits for 457(b) plans. The basic annual limit is the same as a 401(k) or 403(b), but there’s a special “catch-up” contribution rule.
Here’s a simplified breakdown:
| Year | Employee Contribution Limit | Catch-Up Contribution (50+) | Special 457(b) Catch-Up* |
| 2025 | $23,000 | $7,500 | Up to double the annual limit (in last 3 yrs before retirement) |
| 2026 | Adjusted for inflation (likely $23,500+) | $7,500 | Same rule applies |
* The special catch-up is unique to 457(b) plans, letting workers put in extra if they didn’t max out earlier years.
457(b) Plan With Roth Options
Many employers now offer a 457(b) plan with Roth options. This means you can contribute after-tax money and enjoy tax-free withdrawals later—similar to how a Roth IRA works.
Governmental 457(b) vs Non-Governmental
- Governmental 457(b) Plans: These are backed by state and local governments. Assets are held in trust for the employee, making them safer.
- Non-Governmental 457(b) Plans: Usually offered by nonprofits, but these come with more risk since assets remain tied to the employer.
Some large institutions, like universities (e.g., UC system), even run a UC 457(b) plan on Fidelity for employees to manage directly.
457(b) vs 403(b) Plan
Both are retirement savings plans, but there are some key differences:
| Feature | 457(b) Plan | 403(b) Plan |
| Who it’s for | Government + some nonprofit workers | Schools, nonprofits, churches |
| Early withdrawal penalty | No 10% penalty if under 59½ | 10% penalty if under 59½ (exceptions apply) |
| Contribution limits | Similar to 403(b) + unique catch-up option | Similar limits, but no special 457(b) catch-up |
| Roth option | Many offer Roth contributions | Many offer Roth contributions |
| Assets security | Safer in governmental plans | Employer dependent |
If you’re comparing, you might also want to check our guide on what is a 403(b) plan.
Why Does a 457(b) Plan Matter for Payroll and Paychecks?
When you sign up for a 457(b), contributions are taken directly from your paycheck. This lowers your take-home pay, but it’s an investment in your future.
For example, on your pay stub you might see:
- Regular Hours: 80
- Gross Pay: $4,000
- 457(b) Contribution: -$500
- Net Pay: $3,500
This is why a clear and accurate stub matters. With tools like a online paycheck stub generator, you can easily see how retirement contributions, taxes, and deductions affect your real take-home pay.
FAQs About 457(b) Plans
Q1. What is a 457(b) plan in simple terms?
It’s a retirement savings plan for government and some nonprofit workers that lets you save money before taxes.
Q2. What’s the max I can put in a 457(b)?
In 2025, the limit is $23,000, plus $7,500 if you’re 50+. If you’re close to retirement, you may qualify for the special catch-up.
Q3. How is a 457(b) different from a 403(b)?
The main difference is the no early withdrawal penalty in 457(b), while 403(b) usually has one before 59½.
Q4. Can I have both a 457(b) and a 403(b)?
Yes, and you can contribute to both up to their individual limits—unlike 401(k) + 403(b) where the limit is combined.
Q5. Do all 457(b) plans have Roth options?
Not all, but more employers are offering them now. If you want tax-free withdrawals later, check if your plan allows Roth contributions.
Q6. What is a 457(b) top hat plan?
It’s a type of nonqualified deferred comp plan for highly paid employees, with different rules from the standard governmental 457(b).
