Quick Answer
457(b) plans cover state and local government employees and certain tax-exempt organization employees, with the same $24,500 deferral limit as a 401(k) but a unique feature: no 10% early withdrawal penalty at any age. Governmental 457(b) plans are held in trust and rollover-eligible; tax-exempt 457(b) plans are not.
Moving beyond the private-sector plans covered so far, 457 plans serve a distinct group: state and local government employees and certain tax-exempt organization employees. These plans have unique features, especially the early withdrawal penalty exemption.
Who Is Eligible for a 457(b) Plan?
- Available to state and local government employees and certain tax-exempt organization employees
- Deferral limit (2026): $24,500 (same as 401(k))
- Age 50+ catch-up: $8,000 (governmental plans only)
- Age 60-63 super catch-up: $11,250 (governmental plans only)
Special 3-Year Catch-Up
In the 3 years before normal retirement age, participants may defer up to double the annual limit:
- 2026: up to $49,000 (2 x $24,500)
- Cannot combine with the age 50+ catch-up; participants must choose one or the other
- Can use whichever catch-up provision produces the higher deferral
No 10% Early Withdrawal Penalty
This is the defining 457(b) feature:
- Distributions before age 59-1/2 are subject to ordinary income tax but NOT the 10% early withdrawal penalty
- This is unique to 457(b). All other employer plans (401(k), 403(b)) and IRAs impose the 10% penalty on early withdrawals (with limited exceptions)
Exam Tip: Gotchas
- 457(b) plans have NO 10% early withdrawal penalty regardless of age. This is a key distinction from 401(k), 403(b), and IRA plans. The 10% penalty does not apply to 457 distributions.
How Do Governmental and Tax-Exempt 457(b) Plans Differ?
The sponsoring employer type determines key features:
| Feature | Governmental 457(b) | Tax-Exempt 457(b) |
|---|---|---|
| Rollover eligible | Yes (to IRA, 401(k), 403(b)) | No |
| Held in trust | Yes | No (unfunded, general assets) |
| Age 50+ catch-up | Yes | No |
| Creditor protection | Yes | No |
Key distinction: A tax-exempt organization's 457(b) is an unfunded plan. Assets remain part of the employer's general assets and are subject to the employer's creditors, similar to a non-qualified plan. A governmental 457(b) is held in trust and protected.
Exam Tip: Gotchas
- Tax-exempt 457(b) plans cannot be rolled over and have no creditor protection. Only governmental 457(b) plans are rollover-eligible.
Can a 457(b) Stack With a 401(k) or 403(b)?
A unique feature of 457(b) plans: participants can contribute the maximum deferral to both a 457(b) and a 401(k) or 403(b) in the same year. The 457(b) deferral limit is separate from the 401(k)/403(b) limit.
- Example: A government employee with both a 457(b) and a 401(k) could defer $24,500 to each plan in 2026 = $49,000 total (before catch-ups)
Exam Tip: Gotchas
- 457(b) deferral limits are separate from 401(k)/403(b) limits. If a question describes someone with both plans, they can max out both in the same year.
What Should You Check on Exam Day?
- Confirmed the question is about a 457(b), not a 401(k) or 403(b), before applying the no-penalty rule; the 10% early withdrawal penalty does not apply to any 457(b), governmental or tax-exempt.
- Checked whether the plan is governmental (trust-held, rollover-eligible, age-50+ catch-up available) or tax-exempt (unfunded, no rollover, no age-50+ catch-up).
- Distinguished the special 3-year catch-up (double the annual limit, cannot combine with age-50+ catch-up) from the age-based catch-ups.
- Remembered the 457(b) deferral limit is separate from the 401(k)/403(b) limit, so a government employee with both plans can max out both in the same year.