How a 457 Plan Works: Contribution Limits, Withdrawals, and Tax Treatment

By Felix Thorpe · Retirement Accounts WriterPublished October 8, 2026

A 457 plan is a tax-deferred retirement savings account for state and local government employees and certain nonprofit workers

A 457 plan is an employer-sponsored retirement account that lets you set aside money from your paycheck before taxes are taken out. The money grows tax-free until you withdraw it, usually after you leave your job or reach age 59½. Unlike a 401(k), a 457 plan has no early withdrawal penalty if you separate from service—you can take the money out at any age without the 10 percent penalty that normally applies to retirement accounts.

There are two types: a governmental 457(b), offered by state and local government employers, and a nongovernmental 457(b), offered by certain tax-exempt organizations. The rules differ slightly between them, particularly around what happens to your money if you leave your job.

If your employer offers a 457 plan, you will see it listed in your benefits materials or on your payroll portal. The plan is run by your employer, not a federal agency, though the IRS sets the contribution limits and tax rules that apply to it.

Key Takeaways

A 457 plan lets you contribute pre-tax money from your paycheck, and that money grows tax-free until withdrawal.
You can withdraw money from a governmental 457 plan at any age without a 10 percent early withdrawal penalty once you separate from service.
Annual contribution limits are set by the IRS and change each year; for 2024 the limit is $23,500 for most participants.
Money withdrawn from a 457 plan is taxed as ordinary income in the year you take it out, whether you are retired or still working.
A governmental 457 plan is separate from Social Security and Medicare, so you must enroll in Medicare at 65 even if you do not withdraw from the plan.

How contributions work and what the annual limits are

You contribute to a 457 plan through payroll deduction. Your employer withholds the amount you choose from each paycheck and deposits it into your account. The money is not subject to federal income tax at the time of contribution, which lowers your taxable income for that year.

The IRS sets an annual contribution limit. For 2024, the standard limit is $23,500. This limit applies to the total you can contribute across all 457 plans you may participate in during a single calendar year. If you are age 50 or older, you may be able to make an additional catch-up contribution of $7,500 in the same year, bringing your total to $31,000. These limits change annually, and your employer's benefits office or plan documents will show the current year's limit.

Some governmental 457 plans offer a special catch-up provision in the three years before you reach your plan's normal retirement age. This allows you to contribute up to twice the standard annual limit in those final years, provided you have not used the age-50 catch-up in the same year. Your plan administrator can tell you whether this option is available to you.

Tax treatment: when you pay taxes on your money

Money you contribute to a 457 plan reduces your taxable income in the year you contribute it. If you earn $60,000 and contribute $10,000 to your 457 plan, you report only $50,000 as taxable income on your federal tax return that year.

The earnings inside the account—interest, dividends, and investment gains—are not taxed while the money sits in the plan. You pay tax only when you withdraw the money. At that point, the entire withdrawal (both your contributions and the earnings) is taxed as ordinary income at your tax rate in the year you withdraw it.

If you withdraw money before age 59½ and you are still employed, you generally cannot take a distribution. However, if you separate from service (leave your job), you can withdraw at any age without the 10 percent early withdrawal penalty that applies to 401(k)s and IRAs. You will still owe ordinary income tax on the withdrawal, but not the penalty.

Withdrawal rules and what happens when you leave your job

The rules for withdrawing money depend on whether you have a governmental or nongovernmental 457 plan and whether you are still employed.

In a governmental 457 plan, you cannot withdraw money while you are still working for that employer, except in cases of financial hardship (which your plan defines). Once you separate from service—retire, resign, or are laid off—you can withdraw your money at any time, at any age, without a 10 percent penalty. You will owe income tax on the withdrawal, but the penalty does not apply. You can take a lump sum, roll the money into an IRA or another employer plan, or set up a series of payments over time.

In a nongovernmental 457 plan, the rules are stricter. You can withdraw only upon separation from service or at age 59½. If you separate before 59½, you must either roll the money into an IRA or another 457 plan within 60 days, or you will owe income tax plus a 10 percent penalty on the withdrawal. This makes the nongovernmental 457 more similar to a 401(k) in its withdrawal restrictions.

If your employer offers a match or employer contribution, that money follows the same withdrawal rules as your own contributions. Some plans allow you to leave the money in the account after you separate and withdraw it later, while others require you to take a distribution within a certain timeframe. Check your plan documents or ask your benefits office about your specific plan's rules.

Rolling over a 457 plan to an IRA or another retirement account

You can roll money from a 457 plan into a traditional IRA or into another employer retirement plan, such as a 401(k) or 403(b), if the receiving plan allows it. A rollover moves the money directly from one account to another without you touching it, which avoids taxes and penalties.

To execute a rollover, contact your 457 plan administrator and request a direct rollover. Provide them with the account information for the IRA or new employer plan where you want the money to go. The plan administrator will send the funds directly to that account. This process typically takes one to two weeks.

If you do a rollover into a traditional IRA, the money retains its tax-deferred status and continues to grow without taxation. When you withdraw from the IRA later, you will owe income tax on the withdrawal at your tax rate at that time. A rollover does not change your tax liability; it simply moves the money to a different account type.

If you do not roll over the money within 60 days of receiving it, the IRS treats it as a taxable distribution, and you will owe income tax plus potentially a 10 percent penalty (depending on your age and plan type). For this reason, a direct rollover—where the plan sends the money directly to the new account—is safer than taking the money yourself and depositing it later.

How a 457 plan differs from a 401(k) and a 403(b)

A 457 plan, a 401(k), and a 403(b) are all tax-deferred retirement accounts, but they serve different employers and have different rules. A 401(k) is offered by for-profit companies. A 403(b) is offered by schools, hospitals, and other tax-exempt organizations. A 457 plan is offered by state and local governments and some nonprofits.

The most important difference is the early withdrawal rule. With a 401(k) or 403(b), if you withdraw before age 59½, you owe a 10 percent penalty on top of income tax. With a governmental 457 plan, if you separate from service, you can withdraw at any age without the 10 percent penalty. This makes the 457 more flexible if you plan to leave your job before retirement age.

The annual contribution limits are the same across all three account types for 2024: $23,500, plus $7,500 more if you are 50 or older. However, if you participate in more than one type of plan in the same year, the limits do not combine—you can contribute up to $23,500 total across all of them, not $23,500 to each one.

A 457 plan is also not subject to the same required minimum distribution rules as a 401(k) or IRA. With a 401(k) or traditional IRA, you must begin withdrawing money at age 73 (as of 2023). A governmental 457 plan does not have this requirement, so you can leave the money in the account as long as you want if you do not need it.

Medicare enrollment and Social Security coordination

Participation in a 457 plan does not affect your Social Security benefits or your Medicare enrollment requirements. You must enroll in Medicare at age 65 even if you are still working and have not withdrawn from your 457 plan. If you do not enroll when you are first may be able to access, you may face late enrollment penalties.

Your 457 plan contributions do not reduce your Social Security taxable wages. You pay Social Security and Medicare taxes (FICA) on your full salary, even though part of it goes into the 457 plan. This is different from some other benefits, such as health insurance premiums, which reduce both income tax and FICA.

Frequently Asked Questions

Can I withdraw from my 457 plan while I am still working?

In a governmental 457 plan, you generally cannot withdraw while employed, except for financial hardship as defined by your plan. In a nongovernmental 457 plan, you can withdraw at age 59½ or upon separation from service. Check your plan documents to see if a hardship withdrawal option exists and what it covers.

What happens to my 457 plan if I change jobs?

Your money stays in the account. You can leave it there, roll it into an IRA or your new employer's plan, or withdraw it (subject to your plan's rules and tax consequences). Contact your old employer's plan administrator to discuss your options before making a decision.

Is there a required minimum distribution age for a 457 plan?

Governmental 457 plans do not have a required minimum distribution age. You can leave the money in the account indefinitely. Nongovernmental 457 plans follow the same required minimum distribution rules as 401(k)s, beginning at age 73.

Can I contribute to both a 457 plan and a 401(k) in the same year?

Yes, but your combined contributions to both plans cannot exceed the annual limit set by the IRS. For 2024, that limit is $23,500 total across all employer plans. If you contribute $15,000 to a 401(k), you can contribute only $8,500 to a 457 plan that same year.

Do I owe taxes when I roll over my 457 plan to an IRA?

No, a direct rollover does not trigger taxes. The money moves directly from your 457 plan to the IRA without you receiving it. You will owe taxes only when you withdraw from the IRA later. If you take the money yourself and miss the 60-day rollover deadline, you will owe income tax and possibly a penalty.