457 Defined Contribution Plan Overview and Enrollment

A 457 defined contribution plan is a type of retirement savings plan that allows you to contribute a portion of your salary on a pre-tax basis.

Contributions are made with after-tax dollars, but they grow tax-deferred, meaning you won't pay taxes on the investment gains until you withdraw the funds.

You can contribute to a 457 plan if you're a state or local government employee, or a certain type of tax-exempt organization employee.

The plan is designed to help you save for retirement and other long-term goals, and it's often combined with other benefits, such as a 401(k) plan.

You can enroll in a 457(b) plan online, and some plans may also allow you to change your contribution amounts online.

To enroll in a 457(b) plan, you can do so online, but you'll need to check your plan's rules first. The plan administrator can provide more information if needed.

As an employee, you may be able to enroll in a 457(b) plan without being enrolled in other retirement plans. You can also change your contribution amounts online, depending on your plan's rules.

A higher catch-up contribution limit applies for employees aged 60, 61, 62, and 63, with a limit of $11,250 for 2025.

To be eligible for a 457(b) plan, you must receive earned compensation reportable on a W-2 and subject to federal, state, and FICA tax. This means your employer must report your income on a W-2 form and withhold taxes from it.

Examples of eligible compensation include base salary and wages, incentive payments, summer salary for university-year appointees, overtime, shift and administrative differentials, and temporary hourly earnings.

You can contribute the overtime pay you earn to your 457(b) plan, which can be a great way to boost your retirement savings.

Some examples of eligible compensation include:

You can't contribute fellowship, scholarship, or stipend payments to your 457(b) plan, nor can you contribute after-tax payments or long-term disability plan benefit payments.

Ineligible 457 plans are made available because nonprofit organizations are not allowed to have another kind of nonqualified deferred-compensation plan.

These plans allow nongovernmental, nonprofit organizations to set up a plan that can be tax deferred and exceed the normal defined contribution employee deferral limit.

The deferred amounts in these plans would be currently taxable under section 83 of the code, unless the employee faces a "substantial risk of forfeiture". This means the money remains available to general creditors of the organization and is subject to a vesting schedule.

In 2004, Congress passed a tax act that added Section 409A to the tax code and applies to deferred nonqualified compensation, which also covers some 457(f) plans. This was in response to the executive bonus plans given to key employees at Enron.

You can enroll in a 457(b) plan online, depending on your plan's rules, and may also be able to change your contribution amounts online.

If you're an employee, you can enroll in a 457(b) plan without being enrolled in the Basic Retirement Plan or the 403(b) SRA.

You can enroll in the 457(b) plan at any time, without having to wait to contribute the maximum to the 403(b) SRA or another retirement plan.

As an employee aged 60, 61, 62, or 63, you may be eligible for a higher catch-up contribution limit of $11,250 for 2025, effective January 1, 2025 for plans that elect to adopt it.

You can contact your plan administrator for more information on the higher catch-up contribution limit and any limitations that may apply.

You can enroll, increase, decrease, or cancel your 457(b) plan contribution throughout the year, giving you flexibility and control over your retirement savings.

The Small Business Jobs Act of 2010 made a significant change to 457(b) plans, allowing them to include Roth accounts, which were previously only available in 401(k) and 403(b) plans. This change took effect January 1, 2011.

Contributions to Roth accounts in 457(b) plans are made on an after-tax basis, but distributions of both principal and earnings are generally tax-free.

The Economic Growth and Tax Relief Reconciliation Act of 2001, or EGTRRA, made significant changes to how governmental 457 plans are treated. One of the most notable changes is the removal of the coordination of benefits limitation. This means that employees can now contribute the maximum amount to both their 401(k) or 403(b) plan and their 457 plan, totaling up to $52,000 in 2021.

Prior to this change, the coordination of benefits limitation meant that employees could only contribute a certain amount to both plans combined, capping their total deferral at $26,000. The additional catch-up contributions of $6,500 can also be made to both plans, allowing employees to defer a total of $52,000.

The maximum deferral amount for governmental 457 plans was also increased to match the same maximum elective deferral amount as 401(k) and 403(b) plans, which is $19,500 in 2021. This change provides more flexibility for employees to save for retirement.

The EGTRRA legislation also eased restrictions on plan rollovers, allowing governmental 457 plans to be rolled into other types of retirement plans, such as 401(k) or 403(b) plans, IRAs, and other types of employer-provided plans, with few restrictions.

The Small Business Jobs Act made a significant change to 457(b) plans, allowing them to include Roth accounts for the first time. This change was effective January 1, 2011.

Contributions to Roth accounts in 457(b) plans are made on an after-tax basis. This means employees pay taxes on the contributions before they're made to the plan.

The Small Business Jobs Act enabled 457(b) plans to include Roth accounts, a feature previously only available in 401(k) and 403(b) plans.

You can review enrollment deadlines and view step-by-step 457(b) enrollment instructions to make informed decisions.

Contributions are taken from each bi-weekly and monthly paycheck, but not from off-cycle paychecks. This is an important thing to keep in mind when planning your finances.

You can enroll into your 457(b) plan online, but check your plan's rules first to see if that's an option for you.

Catch-up provisions allow employees to contribute extra money to their 457 plan, with a maximum additional contribution of $6,500 for those under governmental plans.

This option is only available to employees who are within 3 years of normal retirement age and is equal to the full employee deferral limit, which is $19,500 for 2021.

Employees can also use their catch-up provisions to make up for unused deferral limits from previous years, but this is limited to those who had deferred the maximum amount into the 457 plan every year they were employed previously.

Withdrawals from a 457(b) account can be made when an employee leaves their job, and they can choose to take payments as needed or set up automatic payments.

Employees can also make withdrawals after a certain age, which varies based on the plan, or due to an unforeseeable emergency, subject to employer and IRS rules.

Required minimum distributions (RMDs) apply to 457(b) retirement accounts, starting at age 73 and no longer working for that employer, and there are penalties for not withdrawing in line with the RMD.

You can contribute an additional $6,500 to a 457 plan if you're eligible, which is a great way to boost your retirement savings.

This option is only available under governmental 457 plans, so if you're not in a governmental plan, you won't be able to take advantage of it.

If you're within 3 years of normal retirement age and eligible for retirement at any age, you can elect a second catch-up option that's equal to the full employee deferral limit, which is currently $19,500 for 2021.

This means you could potentially defer a total of $66,500 into your retirement plans by using all of your catch-up provisions, if you have both a 457 and a 401(k) plan.

However, this second catch-up option is limited to unused deferral limits from previous years, so if you've already maxed out your contributions in previous years, you won't be able to use this extra catch-up.

You can make withdrawals from your 457(b) account when you leave employment, and you have the ability to take payments as needed or request scheduled automatic payments.

Employees may also be able to make withdrawals after a certain age, which varies based on the plan, or due to an unforeseeable emergency. A loan option may also be available.

Withdrawals are generally taxable, but the 10% penalty tax does not apply to distributions prior to age 59½, unlike other retirement accounts.

Required minimum distribution (RMD) rules apply to 457(b) retirement accounts, and an RMD is simply the minimum amount that an employee must withdraw annually in retirement, starting at age 73 and no longer working for that employer.

You're responsible for making sure you're withdrawing in line with the RMD, and there are penalties for not doing so.

To request a withdrawal from a 457(b) plan, you can log in to your account to see if your employer allows online withdrawals, or complete and submit the forms in the 457(b) Plan Benefit Withdrawal Packet.

Employees can make loans from their 457(b) account, but the specifics depend on their employer and the plan rules.

You can take payments from your 457(b) account as needed or request scheduled automatic payments after leaving employment.

A loan option may be available, but details vary based on the plan.

Withdrawals are generally taxable, but you won't face a 10% penalty tax before age 59½, unlike other retirement accounts.

Required minimum distribution (RMD) rules apply, starting at age 73 and no longer working for that employer.

You can take a loan from your 457(b) plan, which is a great option if you need access to funds for a specific purpose.

The loan option may be available, but the details will depend on the plan rules and your employer. You can check with your plan administrator for more information.

Withdrawals from your 457(b) plan are generally taxable, but the 10% penalty tax does not apply to distributions prior to age 59½.

If you're approaching retirement age, it's essential to understand your 457(b) retirement plan rollover options.

You'll need to consider your age, specifically 70½, 72, or 73, depending on when you were born.