What Is a 457(b) Retirement Plan?

By Brent Meyer — SafeMoney.com Founder & Editor Reviewed by Licensed Financial Professionals  |  SafeMoney.com — Trusted Since 2011  |  Updated Regularly Quick Answer: Learn about the 457(b) retirement plan, its benefits, and how it can help you save for retirement. Explore safe money alternatives today! As a public employee, you could contribute to your 457(b) retirement plan to save for your future . In many ways, a 457(b) plan is similar to a 403(b) or 401(k) plan. A 457(b) plan is offered through your employer and is designed to help you save money for retirement. Also known as a deferred compensation plan, a 457(b) plan is commonly offered to government employees – especially those working for local and state governments. A few examples of who might have this plan are: Government officials Police officers Firefighters Emergency medical technicians Public school teachers Those who work for a city, like sanitation workers Using this employer-sponsored retirement account, you can contribute pre-tax dollars. Also, you won’t pay taxes on that money until you withdraw it, usually during retirement. In this way, your contributions can grow tax-deferred until withdrawals are taken . How Does a 457(b) Retirement Plan Work? Just as a 401(k) or 403(b) plan allows, a 457(b) retirement plan lets you contribute and build up retirement savings with tax advantage . You can contribute up to 100% of your salary to a 457(b) plan, as long as it doesn’t exceed a certain limit set by the IRS. This amount can change from year to year. One of the drawbacks of this type of contribution is that, in some cases, if you leave your employer, you could lose the money you contributed. The reason for this is, unlike other types of qualified employer retirement plans, the money you save in a 457(b) plan is held in trust by your employer. In general, 457(b) retirement  plans only offer annuities or mutual funds as investment options. As they are held within the 457(b) plan, both options are tax-deferred. On the flip-side, exchange-traded funds (ETFs) and individual stocks aren’t allowed in 457(b) accounts. Comparing a 457(b) Retirement Plan With Other Retirement Plans A major advantage of 457(b)s over 401(k)s and 403(b)s is that there are no early withdrawal penalties. As long as you have left the job where you had the account, this will usually be the case. However, only employees in the private sector are eligible to participate in 401(k)s. If