Learn about the 457(b) plan in 2025—its benefits, contribution limits, tax rules, and how it differs from a 401(k) or 403(b). Check Below and Plan Your Savings Now!
What is a 457(b) Plan?
The 457(b) plan continues to be a highly beneficial retirement savings option in 2025, specifically designed for employees of government agencies and certain nonprofit organizations. While similar to the 401(k) and 403(b) plans, the 457(b) offers unique tax and early withdrawal benefits, making it a valuable tool for long-term financial planning.
1. What is a 457(b) Plan?
A 457(b) plan is a tax-deferred retirement plan offered to employees of state and local governments and select tax-exempt organizations. Contributions are made with pre-tax dollars, reducing current taxable income and allowing investment growth to occur tax-free until funds are withdrawn during retirement.
Withdrawals from the plan are taxed as ordinary income, but unlike other plans, 457(b) plans allow penalty-free early withdrawals under certain conditions.
2. 2025 Contribution Limits for 457(b)
As of 2025, the annual contribution limit for a 457(b) plan is $23,000, reflecting an inflation adjustment from previous years. If you're age 50 or older, you may contribute an additional $7,500 as a Catch-up Contribution, bringing the total to $30,500 annually.
Moreover, 457(b) plans include a unique "Double Limit Catch-up" provision. If you're within three years of retirement and haven’t maxed out contributions in previous years, you may be eligible to contribute up to $46,000 annually for those final three years.
3. Employer Matching Contributions
Unlike 401(k) plans, most 457(b) plans do not include employer matching contributions. While some government employers may offer limited contributions, the plan is primarily employee-funded. This makes personal financial planning even more essential for retirement readiness.
4. Can You Use a 457(b) with a 401(k) or 403(b)?
Yes! If your employer offers multiple retirement plans, you can contribute independently to a 457(b) and a 401(k) or 403(b). This means you can potentially double your retirement savings.
A strategic approach is to maximize your 457(b) contributions first, since early withdrawals from a 457(b) do not incur the 10% early withdrawal penalty—unlike 401(k) or 403(b) plans.
5. Key Advantages of a 457(b) Plan in 2025
- No 10% early withdrawal penalty before age 59½
- Higher contribution limits with Double Catch-up
- Tax-deferred investment growth
- Independent contribution limits from 401(k)/403(b)
- Rollover options to IRA or other retirement accounts
6. Important Considerations
- Limited or no employer match
- Restricted to government and certain nonprofit employees
- May offer fewer investment choices compared to 401(k)
Conclusion
In 2025, the 457(b) plan remains a smart and flexible retirement savings option, particularly for government and nonprofit workers. The tax advantages, contribution flexibility, and early withdrawal benefits make it a powerful tool for building financial security.
If you’re eligible for a 457(b), now is the perfect time to review your retirement strategy and maximize the available benefits. Be proactive today to secure a comfortable tomorrow.
