Other Retirement Account Types Worth Considering Alongside Your 457 Plan
What other retirement accounts can work alongside a 457 plan
If you have access to a 457 plan through your employer, you can also contribute to a traditional IRA, Roth IRA, or SEP IRA depending on your income and employment situation. The 457 plan does not prevent you from using these accounts — they operate under separate contribution limits and tax rules. Many people use multiple accounts to diversify their savings strategy and take advantage of different tax treatments.
The key difference is that IRAs are individual accounts you open yourself, while your 457 plan is employer-sponsored. This means you control an IRA's investments and can move it between providers, but you cannot borrow from it the way some 457 plans allow. Understanding which accounts make sense for your situation depends on your income level, whether you want tax deductions now or tax-free growth later, and how much you can save each year.
Key Takeaways
- Traditional IRAs and Roth IRAs have much lower contribution limits than 457 plans but offer tax advantages that may not be available through your employer plan.
- If you are self-employed or have side income, a SEP IRA or Solo 401(k) lets you save significantly more than an IRA alone.
- Your income level determines whether you can deduct traditional IRA contributions or contribute to a Roth IRA, so check the IRS limits for the current year.
- You can contribute to both a 457 plan and an IRA in the same year, but the total you save across all accounts should align with your financial goals.
Traditional IRA versus Roth IRA for 457 plan holders
A traditional IRA works like a 457 plan in one way: you get a tax deduction for contributions in the year you make them, and the money grows tax-deferred. You pay income tax on withdrawals in retirement. The catch is that if you have a 457 plan at work, your ability to deduct traditional IRA contributions phases out once your income reaches a certain level. The IRS sets this threshold each year, and it depends on your filing status and whether your employer plan covers you.
A Roth IRA works differently: you contribute after-tax dollars, so you get no deduction now, but withdrawals in retirement are tax-free. There is no income limit on contributions themselves, but there is an income phase-out for who can contribute. The advantage of a Roth is that your money grows tax-free and you can withdraw contributions (not earnings) anytime without penalty. For people in a 457 plan who expect to be in a higher tax bracket in retirement, a Roth can be a smart complement.
Both IRAs have the same annual contribution limit, which is much lower than a 457 plan. For 2024, that limit is $7,000 per person (or $8,000 if you are 50 or older). You can open an IRA at a bank, brokerage, or investment company on your own — you do not need your employer's permission.
SEP IRA and Solo 401(k) for self-employed income
If you have self-employment income from a side business or freelance work, a SEP IRA lets you save much more than a regular IRA. You can contribute up to 25% of your net self-employment income, up to a maximum that the IRS sets each year. This makes a SEP useful if you earn significant income outside your main job and want to reduce your taxable income.
A Solo 401(k) (also called a one-participant 401(k)) is another option for self-employed people. It allows both employee deferrals and employer contributions, so the total you can save is higher than a SEP IRA. A Solo 401(k) also lets you borrow against your balance, which a SEP does not. The trade-off is that a Solo 401(k) requires more paperwork and record-keeping than a SEP.
You can have a 457 plan, a regular IRA, and a SEP IRA or Solo 401(k) all at the same time. The SEP or Solo 401(k) is based on your self-employment income, so it does not interfere with your 457 contributions. This combination is common for people who work full-time for a government or nonprofit employer and also run a small business.
How contribution limits stack across multiple accounts
Each type of account has its own annual contribution limit, and they do not combine. You can max out a 457 plan and also max out an IRA in the same year — the limits are separate. However, some limits do interact. If you contribute to both a traditional IRA and a 401(k) or 403(b) plan, the IRA deduction limit is affected by the other plan. With a 457 plan, this interaction is less direct, but it is worth understanding.
For 2024, a 457 plan allows up to $23,500 in deferrals (or $31,000 if you are 50 or older and your plan allows catch-up contributions). An IRA allows $7,000 (or $8,000 with catch-up). A SEP IRA allows up to 25% of net self-employment income, with a maximum set by the IRS each year. These are separate buckets, so you can use all of them if you have the income to support it.
The IRS publishes updated limits each January, so check the current year's limits before you plan your contributions. Your employer's benefits office can tell you whether your 457 plan allows catch-up contributions, since not all plans do.
When a Roth conversion makes sense with a 457 plan
A Roth conversion means moving money from a traditional IRA (or sometimes a 401(k) or 403(b)) into a Roth IRA. You pay income tax on the amount you convert, but then that money grows tax-free forever. This can be useful if you expect tax rates to rise, or if you want to reduce the size of your traditional IRA to lower required minimum distributions later.
If you have a 457 plan, a Roth conversion of an IRA does not directly affect your 457. However, the conversion itself creates a tax bill in the year you do it, so you need to plan carefully. Some people convert in years when their income is lower, or when they are between jobs. A conversion also counts toward your modified adjusted gross income, which can affect other tax benefits.
Conversions are not automatic — you initiate them by moving money from a traditional IRA to a Roth IRA at the same financial institution, or by rolling it over if the institutions are different. Your IRA provider can walk you through the process, and you will report the conversion on your tax return.
Comparing account types side by side
| Account Type | 2024 Contribution Limit | Tax Treatment | Who Can Use It | Can You Borrow? |
|---|---|---|---|---|
| 457 Plan | $23,500 ($31,000 with catch-up) | Pre-tax; tax-deferred growth | Government or nonprofit employees | Yes, if plan allows |
| Traditional IRA | $7,000 ($8,000 with catch-up) | Deductible if income is below limit; tax-deferred growth | Anyone with earned income | No |
| Roth IRA | $7,000 ($8,000 with catch-up) | After-tax; tax-free growth and withdrawals | Anyone with earned income below income limit | No |
| SEP IRA | Up to 25% of net self-employment income | Pre-tax; tax-deferred growth | Self-employed or business owners | No |
| Solo 401(k) | Up to 25% of net self-employment income, plus employee deferrals | Pre-tax; tax-deferred growth | Self-employed or business owners | Yes |
Withdrawal rules and required minimum distributions
A 457 plan has unique withdrawal rules compared to other retirement accounts. You can withdraw money penalty-free once you leave your job, regardless of your age — this is different from a traditional IRA or 401(k), where early withdrawals before age 59½ usually trigger a 10% penalty. This flexibility is one reason a 457 plan is valuable for people who plan to retire before 59½.
Required minimum distributions (RMDs) begin at age 73 for both 457 plans and traditional IRAs. However, if you still work for the employer that sponsors your 457 plan, you may be able to delay RMDs from that plan until you actually retire. This rule does not apply to IRAs — you must take RMDs from a traditional IRA at 73 even if you are still working. Roth IRAs have no RMD requirement during the account holder's lifetime.
If you have both a 457 plan and a traditional IRA, you calculate RMDs separately for each account. The amount you withdraw from one does not reduce what you owe from the other. Your financial institution will send you a notice when RMDs are required, but it is your responsibility to take them on time — missing an RMD results in a 25% penalty on the amount you should have withdrawn.
Frequently Asked Questions
Can I contribute to a 457 plan and a Roth IRA at the same time?
Yes. The 457 plan and Roth IRA have separate contribution limits and do not interfere with each other. You can max out both in the same year if you have the income to support it. However, your ability to contribute to a Roth IRA phases out at higher income levels, so check the current year's income limits.
What happens to my IRA if I roll it into my 457 plan?
Most 457 plans do not accept IRA rollovers, so you typically cannot move an IRA into a 457 plan. You can roll a 457 plan into an IRA when you leave your job, but the reverse is not usually possible. Check your plan's rules or ask your benefits office if rollovers are allowed.
Do I have to take required minimum distributions from a Roth IRA?
No. Roth IRAs have no required minimum distribution requirement during your lifetime. This makes them useful if you want to leave money to heirs or do not need the income in retirement. Your beneficiaries will have to take distributions after you pass away.
Is a Solo 401(k) better than a SEP IRA for self-employed income?
It depends on your situation. A Solo 401(k) allows higher total contributions and lets you borrow, but requires more paperwork. A SEP IRA is simpler to set up and maintain. If you have significant self-employment income and want the flexibility to borrow, a Solo 401(k) may be worth the extra work. If you want simplicity, a SEP is easier.
Can I deduct traditional IRA contributions if I have a 457 plan?
It depends on your income. If your income is below the IRS limit for your filing status, you can deduct traditional IRA contributions even with a 457 plan. Above that limit, the deduction phases out. The IRS publishes these limits each year, so check the current threshold for your situation.