457(b) Plan Explained: How It Works Next to a 401(k) or 403(b)

If you work for a school district, city, county, state agency or public hospital, your benefits packet may list a 457(b) plan right next to a 403(b) or 401(k). Some nonprofit employers offer one too. It looks like one more retirement account with a confusing number. It is actually a different kind of plan with its own contribution limit, its own withdrawal rules and a few features the others do not have.

This guide explains the 457(b) plan in plain terms: who can offer one, what it does to your paycheck, how it compares with a 401(k) or 403(b), how to stack it with them, and where the risks are. It is general education, not personal tax advice, and your plan document controls the details.

Quick answers

• A 457(b) plan is a deferred compensation plan offered by state and local governments and by tax-exempt organizations under IRC 501(c).
• Your contributions lower the federal income tax withheld from each paycheck, but Social Security and Medicare tax still apply to that pay.
• The 457(b) limit is separate. In 2026 you can generally defer up to $24,500 to a 457(b) and up to $24,500 to a 403(b) or 401(k), if both plans allow it and your pay is high enough.
• A governmental 457(b) does not charge the 10% additional tax on early distributions, though withdrawals are still taxed as ordinary income.
• A non-governmental 457(b) is a very different product, with creditor risk and no rollovers.

What a 457(b) plan is

A 457(b) is an employer-sponsored plan that lets you set aside part of your pay and defer the income tax on it. According to the IRS overview of 457(b) plans, the sponsor must be a state or local government or a tax-exempt organization under IRC 501(c). That gives you two flavors, and the difference matters more than almost anything else in this article.

Governmental 457(b) plans

These are offered by states, cities, counties, school systems and other local government employers. Contributions are held in trust for you. You can usually roll the money to an IRA, 401(k), 403(b) or another governmental 457(b). The plan may allow loans and may offer a Roth option. Money is taxed when it is distributed.

Non-governmental (tax-exempt employer) 457(b) plans

These are offered by 501(c) organizations, and they are limited to a select group of management or highly compensated employees. Plan assets are not held in trust for employees and remain the property of the employer. We cover the consequences below. If you are a rank-and-file nonprofit employee, you will most likely see a 403(b) instead.

State and local governments generally cannot adopt new 401(k) plans, which is why a public employee often sees a 457(b) and a 403(b) instead. Public schools and certain 501(c)(3) organizations are the typical 403(b) sponsors.

How a 457(b) plan shows up on your paycheck

Elective deferrals to a 457(b) are deferred from federal income tax. They are still subject to Social Security and Medicare tax (FICA), exactly like 401(k) and 403(b) deferrals. The IRS Government Retirement Plans Toolkit puts it this way: employee elective contributions are deferred from income tax, and they are subject to FICA.

In practice, your federal taxable wages go down by the amount you defer, while your Social Security and Medicare wages stay the same. For more on this split, see our guide to which deductions reduce FICA wages.

A simple per-paycheck example

Suppose you defer $500 from each biweekly paycheck. Your federal taxable wages drop by $500 on every check. Over 26 paychecks, that is $13,000 a year moved into the plan. Your Social Security and Medicare wages are not reduced by the $500, so those taxes are still figured on your full pay.

Your actual change in take-home pay depends on your tax bracket, filing status and other withholding, so we do not put a single number on it here. Your pay stub will show the deferral as its own line, and a paycheck calculator can model the result for your pay.

One more note: some state and local government jobs are not covered by Social Security. If yours is one of them, only the taxes that apply to your job are withheld, and the FICA comparison above will look different on your stub.

457(b) vs 401(k) and 403(b): side-by-side

The 457(b) vs 401(k) question, and the 403(b) vs 457(b) question, usually come down to the same handful of differences. Here is how a governmental 457(b) compares with the other two.

Feature	Governmental 457(b)	403(b)	401(k)
Who offers it	State and local governments	Public schools and certain 501(c)(3) organizations	Private employers; state and local governments generally cannot adopt new ones
2026 employee deferral limit	$24,500	$24,500	$24,500
Shares a limit with the others?	No, separate limit	Shares one limit with 401(k) and similar plans	Shares one limit with 403(b) and similar plans
10% additional tax on early withdrawals	Not for governmental plan distributions (except rolled-in money)	Generally applies before age 59 1/2, with exceptions	Generally applies before age 59 1/2, with exceptions
Hardship standard	Unforeseeable emergency	Immediate and heavy financial need	Immediate and heavy financial need
Special 3-year catch-up	Yes	No	No
Rollovers out	To IRAs, 401(k), 403(b) and other governmental 457(b) plans	Yes	Yes

The headline feature for most people is the separate limit. The IRS guidance on deferring under more than one plan says 401(k), 403(b), SIMPLE and SARSEP deferrals share one combined limit, while in a 457(b) plan you have a separate limit that is not combined with your 403(b) or other plans.

The dollar limits are adjusted for inflation most years, so check the current figure before setting your election. For the broader picture on the 401(k) side, see our 401(k) limit and take-home pay guide.

Stacking a 457(b) with a 403(b) or 401(k)

The 2026 deferral limit is $24,500 for a 401(k), 403(b), the Thrift Savings Plan and a 457(b). Each limit is the lesser of that dollar amount or 100% of your includible compensation. For a 457(b), the limit counts both your contributions and your employer’s.

Because the 457(b) limit is separate, a worker under 50 whose employer offers both a 403(b) and a 457(b) could defer up to $24,500 to each in 2026. That is $49,000 in total, if both plans allow the maximum and your pay is high enough to support it.

With age 50 catch-up added to the 457(b) side, the 457(b) limit becomes $32,500 ($24,500 plus $8,000), and the 403(b) still allows its base $24,500. That is $57,000 across the two before any catch-up your 403(b) permits. At ages 60 to 63, a plan that permits the higher catch-up of $11,250 gives a 457(b) limit of $35,750, or $60,250 with a full 403(b) base deferral. Our ages 60 to 63 catch-up explains that window.

Almost nobody needs to hit the maximum on both. The point is that a 457(b) can be a second lane, not a replacement for the first.

457(b) withdrawal rules

For a governmental 457(b), money generally can come out when one of these events occurs:

• You separate from employment (severance from employment).
• You reach age 59 1/2 and your plan allows in-service distributions.
• You have an unforeseeable emergency, limited to the amount reasonably necessary.
• The plan terminates.
• Another event your plan allows.

The unforeseeable emergency standard is stricter than the 401(k) test of immediate and heavy financial need, so do not assume a 457(b) is a flexible emergency fund while you are still working.

No 10% additional tax, with one exception

An eligible state or local government 457 plan is not a qualified retirement plan, and distributions from it are not subject to the 10% additional tax on early distributions. That is a real advantage if you leave public service at 45 and need the money. The exception, per IRS Topic 558, is money rolled into the 457(b) from a qualified plan such as a 401(k) or from an IRA. Those rolled-in amounts remain subject to the 10% tax when distributed.

Distributions are still taxed as ordinary income. No 10% additional tax does not mean tax free.

Catch-up options

Age 50 catch-up

Governmental 457(b) plans allow an age 50 catch-up of $8,000 in 2026, for a limit of $32,500. Non-governmental plans do not permit it.

Ages 60 to 63

If your plan permits it, the higher catch-up for ages 60 to 63 is $11,250 in 2026, for a total limit of $35,750.

The special 3-year catch-up

A 457(b) also has its own catch-up in the three years before the plan’s normal retirement age. It is limited to unused deferral room from prior years, and the total is capped at twice the annual dollar limit, which is $49,000 in 2026. It is available in both governmental and non-governmental plans. In a governmental plan, it cannot be combined in the same year with the age 50 catch-up.

Roth catch-up note

Participants whose prior-year FICA wages from the employer exceed an inflation-indexed threshold must make catch-ups as Roth. If the plan has no Roth option, their catch-up is reduced to zero. See our Roth catch-up rule post for the details, and traditional versus Roth for the tax tradeoff.

Non-governmental 457(b): the creditor risk

If you are offered a 457(b) by a nonprofit, ask which kind it is. In a non-governmental plan:

• Assets are not held in trust and remain the employer’s property, available to the employer’s general creditors in litigation or bankruptcy.
• There are no rollovers to IRAs or other plans.
• There are no loans and no Roth option.
• There is no age 50 catch-up.
• You are taxed at the earlier of when the money is made available or when it is distributed.

Your deferral is essentially a promise from the employer. That makes the employer’s financial health part of your retirement plan, and it is worth weighing before you defer a large share of your pay.

How to decide which plan gets your next dollar

There is no universal answer, but a few questions help:

• Is there an employer match? Matches are usually in the 401(k) or 403(b), so capturing a match often comes first.
• Might you leave before 59 1/2? A governmental 457(b) is more accessible than a 403(b) in that case because of the missing 10% tax.
• What are the fees and investment choices? Compare plans, since they can differ widely.
• Is your 457(b) governmental? If not, weigh the creditor risk.
• Do you want to go beyond one plan’s limit? The separate 457(b) limit is the way to do it.

For the broader question, see where your next retirement dollar should go. Talk to a tax professional or your plan administrator before making a large change.

Common questions