457b Max Contribution For 2025

For 2025, the 457(b) contribution limit is expected to be $23,500, an increase from the 2024 limit of $23,000​.

This amount is the maximum employees can defer into their 457(b) account.

If you are 50 or older, you can also make a catch-up contribution of $7,500, bringing the total possible contributions to $31,000. Additionally, the 457(b) plan offers a unique feature called the "final three-year catch-up" provision for participants within three years of the plan’s normal retirement age.

This allows participants to contribute up to double the standard limit if they haven’t contributed the maximum in previous years.

What Is A 457b Plan?

A 457(b) plan is a tax-advantaged, employer-sponsored retirement plan available to employees of certain non-profit organizations and government entities. These plans are similar to 401(k) and 403(b) plans but have unique features that make them particularly attractive for certain workers.

Key Features of a 457(b) Plan:

Eligibility:

  • 457(b) plans are typically offered to employees of state and local governments, as well as some non-profit organizations such as hospitals, universities, and charitable groups.

  • There are two types of 457 plans: governmental 457(b) and non-governmental 457(b). The governmental plan is available to public-sector workers, while the non-governmental plan is available to select private-sector employees in non-profits.

Contribution Limits:

  • For 2025, the standard contribution limit is projected to be $23,500, allowing participants to defer this amount of their income into the plan on a tax-advantaged basis​

  • Catch-up contributions for employees aged 50 and older allow an additional $7,500 in contributions, increasing the total to $31,000.

  • Additionally, the 457(b) has a special catch-up provision for participants who are within three years of the plan’s normal retirement age. This allows individuals to contribute up to double the standard contribution limit if they didn’t contribute the maximum in prior years. For example, in 2025, they could contribute up to $47,000 (twice the $23,500 limit).

Tax Treatment:

  • Contributions to a 457(b) plan are made on a pre-tax basis, meaning they reduce your taxable income in the year they are made, providing immediate tax savings. The funds grow tax-deferred, and taxes are only paid when you withdraw money during retirement.

  • Unlike 401(k) or 403(b) plans, which impose a 10% penalty on withdrawals made before age 59½, 457(b) plans do not have this early withdrawal penalty, making them highly flexible for those who may need to access funds before retirement​. However, income taxes will still apply to withdrawals.

Investment Options:

  • Investment options within a 457(b) plan typically include a range of mutual funds, bonds, and stocks, similar to other employer-sponsored retirement plans. The available choices depend on the plan administrator and the agreements the employer has in place with financial service providers.

Distribution Rules:

  • Distributions from a 457(b) plan can begin as early as the date of separation from employment, regardless of the participant’s age. This flexibility makes it a popular choice for workers who may retire early or change jobs frequently.

  • Like other retirement plans, required minimum distributions (RMDs) begin at age 73 (starting in 2023, per the SECURE Act 2.0)

457(b) and 403(b) Dual Contributions:

  • Employees of certain public institutions (e.g., public schools, universities, or hospitals) may have access to both a 403(b) plan and a 457(b) plan. Since the contribution limits for these plans are separate, participants can contribute the maximum to both plans each year, effectively doubling their retirement savings. In 2025, this means contributing up to $23,500 to each plan, or up to $62,000 when including catch-up contributions.

457(b) and 403(b) Dual Contributions:

  • Employees of certain public institutions (e.g., public schools, universities, or hospitals) may have access to both a 403(b) plan and a 457(b) plan. Since the contribution limits for these plans are separate, participants can contribute the maximum to both plans each year, effectively doubling their retirement savings. In 2025, this means contributing up to $23,500 to each plan, or up to $62,000 when including catch-up contributions​.

Rollovers and Transfers:

  • Governmental 457(b) plans can be rolled over into other qualified retirement accounts, such as an IRA or a 401(k), upon separation from service. This offers flexibility in managing retirement funds and consolidating accounts. However, non-governmental 457(b) plans typically cannot be rolled over into IRAs or 401(k)s but may be transferred to another non-governmental 457(b) plan under certain circumstances.

Non-Governmental 457(b) Plans:

  • Non-governmental 457(b) plans have stricter rules. For example, they are often limited in terms of how funds can be distributed and are usually not transferable to other retirement accounts. These plans are also subject to the employer’s creditors in the event of bankruptcy, which is a risk factor that participants should consider.

Advantages of a 457(b) Plan:

  • No Early Withdrawal Penalty: This feature is particularly valuable for workers who may retire early or anticipate needing access to their funds before the typical retirement age of 59½.

  • Catch-Up Contributions: The special catch-up contribution rule allows for even higher contributions as retirement approaches, making the 457(b) an excellent option for those who may not have saved enough earlier in their careers.

  • Tax Deferral: Contributions reduce taxable income, and earnings grow tax-deferred, which can lead to significant savings over time.

Disadvantages of a 457(b) Plan:

  • Limited Rollovers for Non-Governmental Plans: The lack of rollover options for non-governmental 457(b) plans limits flexibility in how funds can be used in retirement.

  • Subject to Employer’s Creditors: Non-governmental 457(b) plans are not protected from the employer’s creditors, which introduces a level of risk that governmental plans and other retirement accounts do not have.

Conclusion:

A 457(b) plan is an excellent retirement savings vehicle for individuals employed by government or certain non-profit organizations. The ability to contribute large amounts, avoid early withdrawal penalties, and take advantage of tax-deferred growth makes it a strong choice for many. When combined with other retirement accounts like a 403(b) or IRA, it offers robust savings potential. However, for those in non-governmental plans, it’s essential to be aware of the risks related to employer solvency and the limitations on fund transfers.

If you’re considering how to best leverage your 457(b) plan, it's important to seek advice from financial professionals to understand the plan’s unique rules and determine how it fits into your broader retirement strategy. For personalized guidance, reach out to ZAG Consulting for expert advice on maximizing your retirement savings and making informed decisions.



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