457(b) plan
Jayanthi Gopalakrishnan has spent more than two decades as a financial writer and managing editor, including 17 years as the editor for Technical Analysis of Stocks & Commodities magazine, as well as her current role as Director of Content at Stockcharts.com. Her areas of expertise include futures and options trading strategies, stock analysis, and personal finance.
Doug is a Chartered Alternative Investment Analyst who spent more than 20 years as a derivatives market maker and asset manager before “reincarnating” as a financial media professional a decade ago.
Before joining Britannica, Doug spent nearly six years managing content marketing projects for a dozen clients, including The Ticker Tape, TD Ameritrade’s market news and financial education site for retail investors. He has been a CAIA charter holder since 2006, and also held a Series 3 license during his years as a derivatives specialist.
Doug previously served as Regional Director for the Chicago region of PRMIA, the Professional Risk Managers’ International Association, and he also served as editor of Intelligent Risk, PRMIA’s quarterly member newsletter. He holds a BS from the University of Illinois at Urbana-Champaign and an MBA from Illinois Institute of Technology, Stuart School of Business.
A 457(b) plan is a tax-advantaged retirement savings plan available to local government workers and some employees of nonprofit organizations. It’s similar to a 401(k) plan, but one that’s available to firefighters, law enforcement officers, municipal employees, and other civil servants.
As with many retirement plan types, there are traditional and Roth versions of the 457(b), although not all plans offer both types. In a traditional 457(b) plan, contributions are deducted from your paycheck before taxes, and the assets are allowed to grow on a tax-deferred basis—with no capital gains taxes assessed along the way. Instead, you pay taxes at your tax rate when you make withdrawals in retirement.
Some employers offer a Roth option for 457(b) plans, in which case you pay taxes up front, but all withdrawals you make during your retirement are tax free. In general, 457 plans allow you to invest in mutual funds and annuities, but typically may not invest in exchange-traded funds (ETFs) or individual stocks.
For 2023, the contribution limit for a 457(b) plan is $22,500. Employees over the age of 50 can add catch-up contributions worth up to an additional $7,500. Unless you still work for the company that offers your 457(b) plan, you must take required minimum distributions (RMDs) starting at age 72.
In a typical tax-deferred plan, if you take withdrawals before age 59 1/2, you’re assessed a 10% early withdrawal penalty (on top of the normal taxes you’d owe). However, in a 457(b) plan, if you stop working for the employer that sponsors your plan, you can make withdrawals at any age without being assessed the penalty.
Learn more about retirement income planning and different types of tax-advantaged retirement accounts.