457(b) vs. 401(k): The Separate Limit and the No-Penalty Rule

A governmental 457(b) has its own $24,500 deferral limit for 2026, separate from the 401(k) and 403(b) limit. A public employee with both a 457(b) and a 403(b) can defer $49,000. And 457(b) money is never subject to the 10% early-withdrawal penalty after you leave your employer, at any age.

By the About401K editorial team · Facts verified against IRS Notice 2025-67 and IRC §§457, 72(t) · Updated September 24, 2026

What is a 457(b) plan?

A 457(b) is a deferred-compensation plan built for state and local government employees. Teachers, police officers, firefighters, and city and county workers are the typical participants. A second, very different version exists for select employees of certain non-governmental tax-exempt organizations, and that one comes with warnings we cover further down.

Day to day, the governmental version feels almost exactly like a 401(k). You defer money out of your paycheck, pre-tax or as Roth where the plan offers it, you pick from an employer-selected investment menu, and the money grows tax-deferred. If you have had a 401(k) before, nothing about using it will feel unfamiliar.

The difference is where it lives in the tax code. A 457(b) sits under IRC §457 rather than §401, and that different statutory home produces the two features that make this page worth reading. It gets its own contribution limit, and it plays by a completely different early-withdrawal rule.

The first row is the one that changes retirement plans. Everything else on this page is detail around it.

Is the 457(b) limit separate from my 401(k) or 403(b) limit?

Yes, and this is the headline for anyone who has access to two plans. The 402(g) limit aggregates your 401(k) and 403(b) deferrals into one $24,500 cap for 2026. A 457(b) sits outside that aggregation and carries its own separate limit of the same amount (IRC §457(e)(15) and IRS Notice 2025-67).

School districts and universities very often offer both a 457(b) and a 403(b), and an employee in that position can defer the full amount into each plan. Most people who have this option do not realize they have it.

If your budget cannot fill both plans, most advisers suggest funding whichever plan carries an employer contribution first, then splitting the rest. The 457(b) is the more flexible account once you leave the job, for the reason covered next.

The no-penalty advantage after separation

For governmental 457(b) money, there truly is no early-withdrawal penalty. Not a waiver, not an exception you have to qualify for, but no penalty in the first place.

The reason is mechanical. The 10% early-distribution penalty in IRC §72(t) applies to “qualified retirement plans,” and a 457(b) is not one of them. Once you separate from service you can take distributions at 40, at 45, at 52, at any age at all. You owe ordinary income tax on the money, and nothing else.

That also means you never need the rule of 55 or any other exception for this money, because there is no penalty to except yourself from. For police officers, firefighters, and anyone else whose career leads to an early retirement, this usually makes the 457(b) the first account to draw from and the 401(k) or IRA the last.

One asterisk on that is critical. Money rolled into a 457(b) from a 401(k), a 403(b), or an IRA keeps its original penalty character. Plans have to account for rolled-in amounts separately, and withdrawing that money before 59½ still triggers the 10% penalty unless a regular exception applies (IRC §72(t)). The penalty-free treatment covers only the dollars that were deferred into the 457(b) itself.

The special catch-up in the final three years

This one has no equivalent anywhere else in the retirement system. In the three years before the year you reach your plan’s normal retirement age, you may be able to defer up to double the regular limit, which is up to $49,000 for 2026 (IRC §457(b)(3)).

The extra room is not automatic, though, and most people qualify for less than the headline number. It is limited to regular-limit amounts you did not use in earlier years with that employer, so the provision exists to let under-savers make up lost ground rather than to hand everyone a second limit. The plan defines its own normal retirement age within statutory bounds and has to compute your unused amounts for you. Ask your administrator to run the calculation, because your plan document controls it.

You also cannot use the special catch-up and the age-50 catch-up in the same year. You get whichever one is larger, not both stacked together. A 62-year-old eligible for the full special catch-up would take $49,000 rather than the $35,750 available with the super catch-up, while a colleague with little unused history would choose the opposite.

Age-50 and super catch-up eligibility

For governmental 457(b)s the answer is yes. The standard $8,000 catch-up at 50 and over, and the $11,250 super catch-up at ages 60 through 63, both apply (IRC §414(v) and IRS Notice 2025-67).

The 2026 Roth catch-up mandate reaches governmental 457(b)s too. If your prior-year FICA wages from the employer exceeded $150,000, your catch-up contributions must go in as Roth money (SECURE 2.0 §603). For most public employees that threshold is out of reach, but senior administrators and some physicians in public hospital systems will be caught by it.

Non-governmental 457(b)s are treated differently and get no age-50 catch-up at all. They have only the special final-3-years catch-up described above.

The non-governmental 457(b) warning

If your 457(b) comes from a nonprofit employer, such as a hospital system or a private university, rather than from a government, the rules change sharply. Almost every change runs against you, and the differences are large enough that the two plans barely deserve the same name.

• The money isn’t yours yet. Non-governmental 457(b) assets legally remain the employer’s property until they are paid to you, unfunded and unsecured. If the employer goes bankrupt, you stand in line with its general creditors. A governmental 457(b), by contrast, must hold assets in trust for participants.
• No IRA rollover, ever. Non-governmental 457(b) balances can move only to another non-governmental 457(b) that accepts transfers. At separation, your money typically pays out on the plan’s schedule as fully taxable income, sometimes as a lump sum you cannot spread across years.
• Fewer catch-ups and limited eligibility. There is no age-50 catch-up, and the plan must be restricted to a select group of management or highly compensated employees, known as a “top-hat” group, in order to keep its status.

A non-governmental 457(b) can still be worthwhile for a well-paid executive at a financially rock-solid employer who has already maxed out everything else. Just treat it for what it is, which is deferred salary carrying your employer’s credit risk, rather than a retirement account you own.

Rollover options and the penalty trade-off

A governmental 457(b) is fully portable once you separate from service. It can roll into a 401(k), a 403(b), another governmental 457(b), or an IRA, and it can accept incoming rollovers as well. As with any plan, use a direct rollover so the money never passes through your hands, which avoids the mandatory 20% federal withholding (see the rollover rules for the mechanics).

Before you move anything, remember the two-way penalty asymmetry. Rolling 457(b) money out surrenders its penalty-free character forever, and money rolled in keeps whatever penalty exposure it already had. Neither direction can be undone later, so this is a decision worth making deliberately rather than as part of a general account cleanup.

RMDs apply to 457(b)s on the standard schedule, beginning at age 73, or 75 if you were born in 1960 or later. Designated Roth accounts inside the plan have no lifetime RMDs.

Related reading

• 403(b) vs. 401(k): shared limits and the 15-year catch-up
• The 10% early-withdrawal penalty and every exception to it
• All 2026 contribution limits in one table

Sources: IRS: 457(b) deferred compensation plans · IRC §457 · IRC §72(t) · IRS Notice 2025-67 (2026 limits)