457(b) Plan

A 457(b) is a deferred compensation plan that certain state and local government employers and tax-exempt organizations can offer. The rules differ materially between governmental and nongovernmental plans.

What Is a 457(b) Plan?

A 457b retirement plan allows eligible participants to defer compensation under a plan meeting Section 457(b) requirements. Some plans also offer designated Roth contributions, but this feature belongs to governmental 457(b) plans.

Employer type matters from the start. Governmental and nongovernmental plans do not necessarily hold assets, permit rollovers, or distribute benefits in the same way. The IRS 457(b) overview introduces the two categories.

How Does a 457(b) Plan Work?

Under the plan’s terms, a participant elects to defer eligible compensation. The plan may also provide employer contributions. Federal contribution limits apply, and special catch-up provisions may be available under specific conditions.

The eventual benefit depends on the plan, contributions, and investment or crediting arrangements. Participants should check their plan documents for available choices, fees, and distribution events.

Which 457b Plan Rules Differ by Employer?

Governmental Plans

Assets are generally held for participants and beneficiaries in a trust or qualifying arrangement. Eligible distributions can often be rolled into another eligible retirement plan or IRA, subject to applicable rules.

Nongovernmental Plans

These arrangements are generally available to a select group of management or highly compensated employees. Assets remain subject to the employer’s general creditors. Their rollover rules differ from governmental plans.

The IRS comparison of governmental and tax-exempt 457(b) plans sets out these distinctions.

How Does a 457b Compare With a 401k?

Both can help workers save from compensation for later use. Yet eligibility, catch-up rules, access to distributions, and rollover options can differ.

A governmental 457(b) distribution after severance from employment generally has different early-distribution additional-tax treatment from a typical 401(k) distribution. Amounts attributable to certain rollovers require separate attention. A nongovernmental 457(b) also requires a close look at employer credit risk.

Frequently Asked Questions

Can Someone Contribute to Both a 457(b) and a 401(k)?

Potentially. The plans have separate rules, and the employer’s offerings determine what is available.

Can Every 457(b) Balance Be Rolled Into an IRA?

No. Governmental and nongovernmental plans have different rollover treatment.

Is a 457(b) Distribution Tax-Free?

Generally, a taxable distribution is included in income. The contribution type and distribution rules matter.

ClairFi’s Clair360 can help view a 457(b) alongside other retirement accounts and assets.