Section 457 Plan Distributions Explained for a Secure Financial Future

A Section 457 plan is a type of deferred compensation plan offered by tax-exempt organizations, such as universities, hospitals, and non-profit organizations.

These plans allow employees to contribute a portion of their salary to a tax-deferred retirement account.

Contributions to a Section 457 plan are made with pre-tax dollars, reducing an employee's taxable income for the year.

As a result, employees can lower their tax liability and potentially save for retirement more efficiently.

Section 457 plans are often used by organizations that have limited ability to offer traditional retirement plans, such as 401(k) or 403(b) plans.

By participating in a Section 457 plan, employees can accumulate a significant amount of savings over time.

In fact, Section 457 plans can allow employees to save up to 25% of their salary, depending on the plan's provisions.

A Section 457 plan is a type of deferred compensation plan that's commonly used by tax-exempt organizations and certain government agencies.

These plans allow employees to set aside money on a pre-tax basis, which can be a big perk, especially for those in high-tax brackets.

Section 457 plans are governed by the IRS, but they have some unique rules that distinguish them from other types of retirement plans.

One key difference is that Section 457 plans are not subject to the same rules as 401(k) or 403(b) plans, which means they have different vesting schedules and distribution rules.

Contributions to a Section 457 plan are made with after-tax dollars, which means they're not subject to the same tax benefits as pre-tax contributions to a 401(k) or 403(b) plan.

However, the money grows tax-deferred, which can be a big advantage, especially for those who don't need the money right away.

Section 457 plans are typically offered by tax-exempt organizations, such as charities or universities, and are often used as a way to attract and retain top talent.

The plans are usually administered by a third-party provider, which can make it easier for employers to manage the plan and for employees to participate.

The limits of a 457 plan are quite generous, especially for those who are 50 and older. You can contribute up to 100% of your salary, up to the IRS annual limit, which is $23,500 in 2025.

If you're under 50, that's the maximum you can contribute, but if you're 50 or older, you can contribute an additional $7,500 as a catch-up limit. This brings your total contribution limit to $31,000 in 2025.

There's also a provision in the SECURE 2.0 Act that allows 457 plans to offer higher catch-up contributions for participants ages 60 to 63. The maximum catch-up limit is the greater of $10,000 or 150% of the regular catch-up limit.

Here's a breakdown of the catch-up limits for 457 plans:

If you have two jobs, you can contribute to both 457 plans, and the limits apply separately to each plan. This is a huge advantage to participating in a 457 plan, especially if you're trying to save as much as possible for retirement.

For example, if you're over 50, you can contribute an additional $7,500 to each 457 plan, bringing your total contribution limit to $26,000 for each plan.

A section 457 plan offers some unique benefits when it comes to distributions. One of the main advantages is that it allows for looser rules for early withdrawals.

Unlike some other retirement plans, you can withdraw funds from a 457 plan without incurring a 10% penalty from the IRS, as long as you're not rolling the funds over to another tax-advantaged account. Early distributions are also allowed for participants who leave a job.

Here are some key benefits of 457 plan distributions at a glance:

It's worth noting that while a 457 plan has its advantages, one potential downside is that employers don't commonly match employee contributions, which can limit the plan's overall value.

You can withdraw from a 457 plan without penalty for an unforeseeable emergency. This is a relatively rare occurrence, but it's an important exception to the rules.

Withdrawals from a 457 plan are subject to income tax at any age, and you'll need to start taking distributions by age 73.

Some 457 plans allow for loans, with repayment typically required within five years. This can be a useful option if you need access to your funds for a short period.

Withdrawals can begin at age 59 1/2 without penalty, but you'll still need to pay income tax on the withdrawals. This is a key difference from qualified plans and IRAs, which have a 10% penalty for early withdrawals.

Here's a summary of the key withdrawal rules:

If you're over 50, you can make additional catch-up contributions to your 457 plan. This can be a huge advantage for motivated savers.

There are two catch-up provisions available for employees over 50. One is a complex formula that calculates the limit based on the normal limit and the actual amount deferred in the previous three years.

The other catch-up provision is a flat amount of $6,500, which is available to participants in a governmental 457 plan. This makes the total deferrals possible $26,000.

For example, if you have two jobs and are eligible to defer into both a 401(k) and a 457 plan, you can defer a total of $39,000. If you're over 50, you can add an additional $6,500 to both plans, making the total deferrals possible $45,500.

You can roll your 457 plan into an IRA, but it's recommended to use a platform like M1 Finance to make the process smoother.

If you're considering rolling over your 457 plan into a 403b or 401k, you'll need to contact your plan administrator for more information on the rules and process.

You can roll your 457 plan into a 403b or 401k, but the rules and availability will vary depending on your plan and provider.

The rules for rolling over a 457 plan into a 403b or 401k are different for each plan and provider, so it's essential to get specific guidance from your plan administrator.

If you're considering a 457(b) plan, you'll want to know about its alternatives and options. A 401(k) plan is a similar option that allows workers to lower taxable income and invest in retirement savings.

One key difference between a 457(b) and a 401(k) plan is that employer matching contributions are not available with a 457(b). Contributions made to a 457(b) may not be matched by the employer like a 401(k).

A 457(b) plan is specifically designed for employees of government agencies, public services, and nonprofit organizations such as hospitals, churches, and charitable organizations.

The 457(b) plan is a version of the 401(k) plan designed for public and nonprofit workers.

It helps employees save for retirement while deferring the tax bill until they retire and withdraw the money. This plan is available to a wide range of public and nonprofit workers, but it's not limited to executives.

The 457(f) plan, also known as a Supplemental Executive Retirement Plan (SERP), is a retirement savings plan for only the highest-paid executives in the tax-exempt sector. They are mostly employed in hospitals, universities, and credit unions.

A 457(f) plan supplements a 457(b) plan, providing additional retirement savings benefits to top executives. This plan is specifically designed for executives who need extra retirement savings support.

If you work for a government agency, public service, or a nonprofit organization, you might have a 457(b) plan as an alternative to a 401(k). A 457(b) plan is similar to a 401(k) but with some key differences.

Contributions to a 457(b) plan are not matched by the employer, unlike a 401(k). This means you won't have the same potential for employer-matched funds to grow your retirement savings.

A 457(b) plan can use either pretax or post-tax contributions, depending on the version you have. The traditional version uses pretax contributions, while the Roth version uses post-tax contributions.

You can start withdrawing from your 457 plan as early as age 59 1/2 without penalty, but be aware that withdrawals before this age will likely incur an early withdrawal penalty and federal income tax.

If you're 50 or older, you can make catch-up contributions up to $8,000 in 2025 to your 457 plan, giving you an extra boost to your retirement savings.

Withdrawals from a governmental 457 can be rolled into a Traditional IRA at retirement, but the required minimum distribution rules will apply at age 72.

A non-governmental 457, on the other hand, must be distributed, with no other options available, which could lead to a large tax bill in the year of distribution.

You can start taking required minimum distributions from your 457 plan by age 73, or your retirement age if later, whichever is earlier.

Here's a quick summary of the distribution rules for 457 plans: