457(b)

A 457b Retirement Plan is a Deferred Compensation Plan Available through Eligible State and Local Government Employers and Certain Tax-Exempt Organizations. Governmental and Nongovernmental 457(b) Plans Follow Different Rules for Assets, Roth Contributions, Distributions, and Rollovers.

What is a 457(b) Plan?

An Eligible 457(b) Plan Lets Participants Defer Compensation for Future Payment. Traditional Deferrals are Generally Not Included in Federal Taxable Income Until They are Paid or Otherwise Become Taxable under the Applicable Rules.

A Governmental 457(b) may Cover Employees of a State, Political Subdivision, or Related Governmental Agency. A Nongovernmental 457(b) may be Maintained by an Eligible Tax-Exempt Employer, but Participation is Generally Limited to a Select Group of Management or Highly Compensated Employees.

How does a 457(b) Plan Work?

A Participant Elects to Defer Part of Eligible Compensation, and the Employer Credits the Amount under the Plan. Employer Contributions may Also be Allowed, but They Count Toward the Plan’s Applicable Deferral Limit. Investment Choices and Fees Depend on the Plan.

Governmental Plans must Hold Plan Assets for the Exclusive Benefit of Participants and Beneficiaries. Nongovernmental Plans must Remain Unfunded, and Their Assets Generally Remain Property of the Employer and Subject to Its General Creditors. This Difference Creates a Material Credit Risk for Nongovernmental Participants.

What are the Main 457b Plan Rules?

Contribution Limits and Catch-up Rules

Section 457(b) Applies an Annual Limit to Deferrals and Employer Contributions. Eligible Participants may have Access to Catch-up Contributions, but the Available Rule Depends on the Plan Type, Age, Service History, and Written Plan.

Distributions

Distribution Events may Include Separation from Service, an Unforeseeable Emergency, Required Minimum Distributions, or Another Event Permitted by Law and the Plan. An Unforeseeable Emergency Standard is Narrower than an Ordinary Financial Need.

Rollovers

Eligible Distributions from a Governmental 457(b) can Generally be Rolled to an IRA or Another Eligible Retirement Plan. Distributions from a Nongovernmental Tax-Exempt 457(b) Cannot be Rolled into an Eligible Retirement Plan.

457b vs 401k: What is the Difference?

A 401(k) is a Qualified Defined Contribution Plan Commonly Offered by Private-Sector Employers. A 457(b) is a Deferred Compensation Plan for Eligible Governmental or Tax-Exempt Employers. The Section 457(b) Deferral Limit is Separate from the 401(k) Elective Deferral Limit, Which may Allow an Eligible Participant with Both Plans to Contribute to Each Within Applicable Rules.

An Eligible Governmental 457(b) may Offer Designated Roth Contributions if Its Terms Allow Them. Nongovernmental 457(b) Plans do Not Follow the Same Roth and Rollover Rules. Distributions from a Governmental 457(b) Generally Avoid the Additional Tax on Early Distributions, Except for Amounts Attributable to Certain Rollovers from Other Plan Types.

What should Participants Review?

• Confirm Whether the Plan is Governmental or Nongovernmental.
• Review Eligibility, Contribution Elections, Fees, and Investment Choices.
• Understand Distribution Events and Any Unforeseeable Emergency Standard.
• Check Creditor Exposure and Rollover Eligibility before Making Decisions.

Frequently Asked Questions

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

Yes, if the Participant is Eligible for Both Plans. Separate Deferral Limits Generally Apply, but Each Plan’s Terms Still Control Contributions.

Can a 457(b) be Rolled into an IRA?

An Eligible Governmental 457(b) Distribution Generally can be Rolled over. A Distribution from a Nongovernmental Tax-Exempt 457(b) Cannot.

Is Every 457(b) Protected from Employer Creditors?

No. Governmental Plan Assets are Held for Participants, While Nongovernmental Plan Assets Generally Remain Subject to the Employer’s Creditors.

How does a 457(b) Fit into Retirement Planning?

A 457(b) should be Reviewed with Other Workplace Plans, Taxes, Investment Costs, Distribution Timing, and Employer Credit Risk. Explore Clair360 to See How ClairFi Connects Employer Benefits with a Broader Wealth Plan.