457(b) Plan

A 457(b) plan is a tax-advantaged retirement savings plan that lets eligible employees defer part of their pay into an account. It is offered by state and local governments and by certain tax-exempt organizations, which makes it a familiar benefit in the public sector and at some nonprofits.

The plan works much like a 401(k) from the employee's side, with payroll deferrals, investment choices and tax-deferred growth. Several rules, including the distribution rules and the catch-up options, are different enough that HR should treat it separately.

Who Can Offer a 457(b) Plan?

The IRS explains that a governmental 457(b) plan can be maintained by a state or local government. Certain tax-exempt organizations may also sponsor a 457(b), usually for a select group of management or highly compensated employees.

That split matters. Governmental plans hold assets in trust for participants, while plans of tax-exempt organizations are generally unfunded promises, which means participants are general creditors of the employer.

Private for-profit employers cannot sponsor a 457(b). They use 401(k) plans or nonqualified arrangements for similar goals.

What Are the 457(b) Contribution Limits for 2026?

For 2026, the IRS has set the elective deferral limit for 401(k), 403(b) and governmental 457 plans at $24,500. The catch-up limit for employees aged 50 and over is $8,000, and a higher limit of $11,250 applies to those aged 60 through 63.

Governmental 457(b) plans also offer a special catch-up in the three years before normal retirement age. The IRS notes that a participant cannot use the age 50 catch-up and this special limit in the same year.

Because the 457(b) limit is separate from the 401(k) and 403(b) limits, an employee with access to both can often contribute the full amount to each. HR should explain this clearly to employees with multiple plans.

How Do 457(b) Distributions and Rollovers Work?

Distributions are allowed on specific events, including separation from employment and an unforeseeable emergency. In many plans, an employee can access funds after leaving the employer without waiting for a particular age.

Distributions from a governmental 457(b) are generally not subject to the 10 percent additional tax that applies to early withdrawals from many other plans, though ordinary income tax still applies. Rollover amounts brought in from other plans can have different treatment.

Participants can also roll a 457(b) balance into other eligible plans, including a 401(k), a 403(b) or an IRA, which gives flexibility when they change employers.

How Does a 457(b) Compare With a 403(b)?

Many public employers offer both, so employees can save the maximum in each. The 403(b) plan page covers that sibling arrangement in more detail.

What Mistakes Should Plan Sponsors Avoid?

Most 457(b) problems are administrative. The plan itself is simple, but the details trip up sponsors that treat it as a copy of the 401(k).

• Confusing a 457(b) with a 457(f) plan, which is a different arrangement with different rules.
• Applying the wrong catch-up option or letting employees use both in the same year.
• Depositing employee deferrals late, which can create compliance issues.
• Failing to explain which events allow a distribution, so employees expect access they do not have.

A short annual notice that explains limits, catch-up choices and distribution events prevents most of these questions.

How Can HR Cloud Help With Retirement Plan Administration?

HR Cloud's materials do not describe retirement plan recordkeeping, which stays with your plan provider. People HRIS can help with the surrounding tasks through e-forms and e-signatures, secure document storage with version tracking and approval workflows.

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Frequently Asked Questions

Q: Is a 457(b) the same as a 401(k)?

A: No. They work similarly, but a 457(b) is offered by governmental and certain tax-exempt employers and has different distribution rules and its own contribution limit.

Q: Can an employee contribute to a 457(b) and a 403(b) in the same year?

A: Yes. The limits are separate, so an employee may contribute up to the limit in each plan.

Q: What is the 2026 contribution limit?

A: The IRS lists $24,500 for 2026, with an $8,000 catch-up for ages 50 and over and an $11,250 catch-up for ages 60 through 63.

Q: Can employees withdraw funds before retirement?

A: Only on permitted events such as separation from employment or an unforeseeable emergency, depending on the plan.

Q: Is there a penalty for early withdrawals?

A: Governmental 457(b) distributions are generally not subject to the 10 percent additional tax, though they are taxed as ordinary income.

Q: Can a 457(b) be rolled over?

A: Yes. The IRS lists rollovers to other eligible plans, including 401(k) and 403(b) plans, governmental 457(b) plans and IRAs.