Many state and local government employees have access to a workplace retirement savings plan known as a 457(b). These plans allow eligible workers to defer part of their compensation into an account for retirement and other permitted distributions.
A governmental 457(b) plan has features that distinguish it from a typical 401(k), making it important for public employees to understand the rules before contributing or withdrawing money.
How a governmental 457(b) works
A governmental 457(b) plan is generally available to employees of state and local governments. Contributions are typically made through salary deferrals, reducing current taxable income when made on a pre-tax basis.
Some plans also offer Roth contribution options, where eligible contributions are made after tax and qualified withdrawals may be tax-free.
The plan's investment choices, administrative fees, and distribution options depend on the employer and plan documents.
The 2026 contribution limit
For 2026, the standard employee elective deferral limit for a 457(b) plan is $24,500. Additional catch-up contributions may be available to eligible participants, depending on age and plan provisions.
Some governmental plans also permit a special catch-up contribution during the three years before the plan's normal retirement age, subject to statutory requirements and limits based on prior unused deferrals.
The special catch-up and age-based catch-up rules cannot simply be stacked without regard to the applicable limits.
A key difference from many 401(k) plans
Governmental 457(b) plans generally have different early-distribution rules from 401(k) plans. Distributions from a governmental 457(b) plan after separation from service are generally not subject to the 10% additional tax that often applies to early distributions from other retirement plans.
However, amounts rolled into a governmental 457(b) from other types of retirement accounts may be subject to different rules. Participants should not assume that every dollar in the account has identical tax treatment.
Review the plan before making decisions
Workers should check whether their employer offers a governmental or nongovernmental 457(b), because the legal and distribution rules differ. They should also review investment expenses, employer contributions if any, beneficiary provisions, and withdrawal options.
Bottom line: A governmental 457(b) can be a valuable retirement savings tool for eligible public employees. Its contribution limits and distribution rules are distinctive, so workers should understand the plan before making decisions.
This article is for educational purposes and is not individualized tax or investment advice.
