State and local government employees can invest more in their 457 plans in 2025 than in 2024. Similar to the better-known 401(k) plan in the private sector, the 457 plan (sometimes called a "457(b) plan") allows employees to deposit a portion of their pre-tax earnings in an investment account.
The 457 plan is also a tax-advantaged account. That means employees postpone paying taxes on the money invested in the 457 until the funds are withdrawn after they retire. This makes a 457 plan a vital part of retirement planning for government employees..
Unlike most other retirement accounts, there are two types of catch-up contributions for 457 plans: the age 50+ catch-up provision and the pre-retirement 3-year catch-up provision.
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457 plan contribution and catch-up limits for 2025
The maximum amount you can contribute to a 457 retirement plan in 2025 is $23,500, including any employer contributions. That amount is up $500 from $23,000 in 2024.
For example, if your employer contributes $5,000, you can contribute up to $18,500 to meet the annual limit. (Most 457 plans, however, don't match worker contributions).
The age 50+ catch-up provision. If you're 50 or older, your 457 plan may allow you to contribute an additional $7,500 as a "catch-up" contribution, bringing your total allowable contribution to $31,000 in 2025.
SECURE 2.0 catch-up contributions 60-63:
Starting in 2025, SECURE 2.0 enhanced catch-up contributions for certain older adults. If you’re 60, 61, 62, or 63 in 2025, you may be able to take advantage of this provision and increase your savings for retirement. If you're 59 or 64, this super catch-up contribution does not apply.
This 60-63 catch-up contribution limit in 2025 is $10,000 or 150% of the standard age 50+ catch-up contribution limit, whichever is greater.
For example, the catch-up limit for those age 50+ in 2025 is $7,500. The enhanced catch-up contribution limit for those age 60-63 is $11,250. Remember that once you reach 64, these limits revert back to the standard age 50+ catch-up contribution limit.
No double-dipping. However, if you are eligible for both the 50-plus and 3-year catch-up contributions, the IRS will only allow you to take advantage of the one that adds the most to your retirement account. You can’t do both.
Benefits of a 457 retirement plan
As with contributions to a traditional 401(k) or to a 403(b), your money goes into a 457 plan before you pay income taxes on it. That means the pretax contributions lower your current taxable income. Meanwhile, your contributions and earnings grow tax-sheltered until you withdraw them. Unlike most other retirement accounts, the IRS doesn't penalize you for taking early withdrawals from a 457 account before age 59-1/2. But you will pay regular income tax on all withdrawals.
Some 401(k) plans in the private sector automatically enroll workers. But 457 plans generally do not permit auto-enrollment because of state or local laws. So, the first step in benefiting from this retirement plan is to sign up.
How is a 457 different from a 401(k)?
401(k) and 457 retirement plans have similarities and differences to consider. The most obvious difference is that 457 plans are primarily offered to government employees, including state and local government officials, city and county employees, public school teachers and first responders. By contrast, 401(k) retirement plans are typically offered by private employers.
401(k) plans | 457 plans |
Commonly offered to government workers | Offered to private-sector employees |
Generally, employers match employee contributions | Rarely match employee contributions |
10% penalty on early withdrawals before age 59-1/2 | Withdrawals before the age of 59-1/2 are not subject to a 10% penalty |
Roth options are available | Roth options are available |
Loans are allowed | Loans are allowed |
Often offer auto-enrollment | Generally do not permit auto-enrollment |
Best investments for a 457 plan
After you sign up, do your due diligence regarding investment options. Fees and other costs are always important when evaluating investments.
More 457 plans are adding target-date mutual funds that take much of the investment decision-making out of workers' hands. With target-date funds, a worker chooses the fund whose name includes the year closest to his or her expected retirement date. In 2025, a worker planning to retire in about 20 years would select a target-date fund with a year close to 2045 in its name. (Target-date funds typically are named in five-year increments: 2035, 2040, 2045 and so on.) These funds invest aggressively when workers are young and gradually become more conservative as retirement approaches.
For example, a target-date fund meant for workers in their twenties holds mostly stocks. But investments in a target-date fund for someone nearing retirement age may be split evenly between stocks and bonds.
Besides target-date funds, 457 plans generally offer a lineup of index funds, actively managed stock mutual funds and fixed-income funds. They also offer managed-accounts, which are professionally managed to match your financial goals and risk tolerance.
Bottom line
Similar to a 401(k), a 457 or 457(b) plan applies to employees of government agencies, nonprofit organizations and public service workers. With this plan, employees can save pre-tax earnings in an account, reducing their annual income taxes while also deferring any taxes due until the money is withdrawn in retirement. Governmental 457(b) plans may also be adapted to allow designated Roth contributions and in-plan rollovers to designated Roth accounts.
Keep in mind that employees are not automatically signed up, so reach out to your plan manager or financial advisor so you don't miss out on a potentially lucrative opportunity to save for your retirement.
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