Site icon Living Incrementally

Advantages of the 457(b) Plan

I work for a government organization.  Traditionally, we’re known as the workforce that’s underpaid, but which has great benefits… so it sort of makes up for it.  At least, that’s what they say.

Although I don’t entirely agree on both fronts, recently I discovered a new financial trick-of-the trade that’s only available to those who work in government organizations and certain nonprofits — like hospitals, charities, and unions. The 457(b) plan is an employee-sponsored, tax-favored retirement savings account that acts much like a 401(k) or 403(b) for government workers, but is even more attractive. Here’s why:

Tax Free Contributions & Lowering Taxable Income 

Higher Retirement Contribution Ceilings 

Tax Deferred Savings Plan — with NO Penalty

Another HUGE advantage to the 457(b) plan is that it’s basically a tax deferred savings plan. Normally, the IRS penalizes individuals who take funds out of a 401(k) or 403(b) plan — so much so, that they charge you for it.  There’s a 10% fee for any funds you withdraw before the age of 59.5. This 10% fee is on top of the taxes you have to pay to withdraw as well, because when you withdraw, the funds are considered income and are taxed accordingly.  However with a 457(b) there is no 10% charge if you leave the job with whom you have the 457(b) with. So if you don’t plan on staying at your current workplace forever, you could think of it as income you’re saving (and growing) without having to pay taxes up front.


So here’s my recommendation…DO IT!   Contribute to a 457(b), max out, even.  You won’t miss the money as much as you think you will.  Working for a government organization doesn’t have very many advantages, but this is a real one.

If you need help estimating how much of an affect contributing to a 457(b) plan or a 401(k) or (403)b plan, feel free to email me at


Exit mobile version