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Are 457 Plan Withdrawals Taxable?


All contributions to 457 plans grow tax-deferred until retirement when they are either rolled over or withdrawn. All withdrawals are taxable, regardless of the participant’s age. Similar to 401(k)s and 403(b)s, all contributions into 457 plans grow tax-free, but early withdrawals are not penalized.

Key Takeaways

A 457 plan is one of several retirement plans that employers offer to their workers, but it is less common and more complex than a 401(k) or 403(b).Most private companies usually offer 401(k) plans and public school systems, and other nonprofits offer 403(b) plans. Withdrawals can be made at retirement, after terminating employment, or for qualifying financial hardships.457(b) plans are mostly designed for local and state government employees, whereas 457(f) plans are for non-government employees or highly compensated government employees.457(b) plans can be rolled into qualified retirement accounts, such as a traditional IRA.

457 Plans

Notably, 457 plans are not classified as qualified plans, and they are not bound by the same rollover and distribution rules as 401(k) and 403(b) plans. Originally, 457 plans were only available to state and local government employees, entities, and 501(c)3 organizations.

Looser restrictions now allow more employers to offer 457 plans in addition to other retirement plans. If you qualify, you can contribute to both a 457 plan and a Roth IRA, and by doing so, you may be able to save more money for retirement than if you only invest in one account.

Before retirement or severance from employment, participants can take withdrawals from their 457(b) plan under certain circumstances. A financial hardship–caused by disease or illness, accidents, property losses from natural disasters, funeral expenses, evictions or foreclosures, and other unforeseeable emergencies–qualifies as a distributable event.

The IRS requires 457(b) participants to take a required minimum distribution at age 72 (or 70 1/2 if 70 1/2 before January 1, 2020).

Differences Compared With 401(k) and 403(b) Plans

Unlike 403(b) and 401(k) accounts, participants can take regular withdrawals from 457 plans as soon as they retire, regardless of whether they have reached age 59 1/2 . These distributions are taxed as regular income, but the 10% early withdrawal penalty is never applied. Rather than withdrawing funds, participants may roll over their 457 plans into qualified retirement plans, such as an IRA.

Note that you can have a 457 plan, Roth IRA, and Roth 457. A Roth 457 allows you to contribute to the plan on an after-tax basis and pay no taxes on qualifying distributions when the money is withdrawn.


Participants can contribute to their 457(b) retirement plan but not without limits. In 2022, employees can contribute the maximum of either their pay or $20,500 ($19,500 for 2021). Employees who are 50 or older may an additional $6,500 as a catch-up contribution.

Some plans allow participants nearing retirement to remit larger or special catch-up contributions. For three years before the normal retirement age, participants can remit an additional contribution equal to the annual IRS contribution limit or the total of what they did not contribute for previous years, whichever is less. In other words, a participant cannot remit more than $41,000 for 2022 (twice the annual contribution limit).

Special Considerations

As the only non-qualified group plans available in the United States, 457 plans are unique and complex, offering several advantages over more widely used deferred compensation plans.

While more employers are offering 457 plans every year, they are not common. There are many different types of 457 plans, all with different characteristics; they are categorized as governmental or non-governmental, and eligible or ineligible. Eligible plans are categorized as 457(b); ineligible plans are categorized as 457(f), and they lack many of the benefits of eligible plans.

457 (b)–the most common of the 457 plans–are eligible deferred compensation plans generally available to state and local government employees. Participants are limited to how much they can contribute and when distributions can be made. Taxes are deferred until distributions are made from the account.

457(f) plans are ineligible deferred compensation plans available to high-wage-earning government employees and certain non-government employed workers. Most plans only allow employer contributions; however, unlike the 457(b), there are no contribution limits. Taxes are deferred until there is no significant risk of forfeiture. In other words, the employee’s benefit is included in their gross income when fully vested regardless of whether distributions are made.

How Is a 457 Withdrawal Taxed?

A 457 withdrawal is taxed as ordinary income and is not subject to IRS premature withdrawal penalties.

Are 457 Withdrawals Considered Earned Income When Collecting Social Security?

457 distributions are not earned income and will not affect social security payments.

When Can You Withdraw From a 457 Plan Without Penalty?

Withdrawals from a 457 plan can be taken at any time without an IRS premature withdrawal penalty.

How Can I Avoid Paying Taxes on a 457 Withdrawl?

Withdrawals from 457 retirement plans are taxed as ordinary income. However, distributions from a ROTH 457 plan are not subject to tax withholding. Also, 457 plan participants are permitted to roll over their funds into other qualified plans. Rollovers, except into a ROTH IRA, are not taxable events.

The Bottom Line

457 plans are non-qualified deferred-compensation plans offered to employees. Contributions accumulate on a tax-deferred basis until distributed or, for 457(f) plans, when the employee is fully vested. Like most retirement accounts, the IRS imposes limits on how much can be contributed annually. However, withdrawals are not subject to the 10% IRS premature withdrawal penalty, making the 457 an attractive retirement vehicle.

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