457(b) vs. 401(k) Plans: What’s the Difference?

When saving for retirement, your employer may give you a hand by offering a tax-advantaged savings plan. Your options might include a 401(k) plan or a 457(b) plan. Both plans allow you to contribute money toward retirement on a tax-deferred basis. While there are similarities between a 457(b) and a 401(k), there are also key differences to keep in mind. The rules for 457(b) plans also differ depending on whether the plan is sponsored by a state or local government or a nongovernmental tax-exempt organization. Those variations can affect how a plan will work for you and your retirement.

Consider working with a financial advisor as you create or modify your retirement plan.

What Is a 457(b) Plan and How Does It Work?

A 457(b) plan is a non-qualified deferred compensation plan. It can be offered by state and local governments and certain tax-exempt organizations. Governmental and nongovernmental 457(b) plans share some basic rules, but they differ in areas such as Roth contributions, age-based catch-up contributions, loans and rollovers.

The kinds of employees who may have access to a governmental 457(b) through their employer include:

• Teachers (public school)
• Law enforcement officers
• Firefighters and emergency services workers
• City and county employees
• State, county and local government officials

Nongovernmental 457(b) plans are generally limited to a select group of management or highly compensated employees of eligible tax-exempt organizations.

In terms of how a 457(b) plan works, it’s very similar to a 401(k) when it comes to tax-deferred contributions and investment growth, but the contribution rules are not identical. For 2026, workers with a 457(b) plan can contribute up to the lesser of $24,500 or 100% of their includible compensation. Employer contributions generally count toward this same 457(b) limit.

Governmental 457(b) plans may allow workers age 50 or older to make an additional $8,000 in catch-up contributions, bringing the total to $32,500 in 2026. Workers ages 60 through 63 can instead qualify for a higher catch-up of $11,250, for a total of $35,750. Nongovernmental 457(b) plans do not permit these age-based catch-up contributions.1

This money grows tax-deferred, meaning no taxes are owed on investment earnings until money is withdrawn. A governmental 457(b) plan can also offer a designated Roth account with after-tax contributions. Qualified distributions from a designated Roth account can be tax-free. Nongovernmental 457(b) plans cannot offer designated Roth accounts.

Special Rules for 457(b) Plans

One feature that distinguishes 457(b) plans from 401(k)s is how employer contributions affect the annual limit. Employer contributions to a 457(b) generally count toward the same basic annual limit as employee deferrals. If your employer contributes $5,000 to your plan for 2026, for example, you could generally contribute another $19,500 before reaching the $24,500 basic limit.

Also, 457(b) accounts may allow a special catch-up during the three taxable years immediately before the year in which a worker reaches the plan’s normal retirement age. This provision is available to both governmental and nongovernmental 457(b) plans. Eligible participants can contribute up to the lesser of:

• Twice the annual contribution limit, which would be $49,000 total for 2026
• The regular annual limit plus eligible unused contribution amounts from prior years

Participants in governmental plans who qualify for both an age-based catch-up and the special three-year catch-up cannot use both in the same year. Instead, they can use the catch-up provision that allows the larger contribution.

What Is a 401(k) Plan and How Does It Work?

A 401(k) is the most popular type of qualified retirement plan offered by employers. These plans are commonly offered by private-sector employers and may also be offered by certain tax-exempt organizations. State and local governments generally cannot establish new 401(k) plans, although governmental 401(k) plans adopted before May 6, 1986, may continue operating.

The annual employee elective deferral limit for a 401(k) is $24,500 in 2026, the same basic dollar limit that applies to a 457(b). The standard catch-up limit for workers age 50 and older is $8,000, while workers ages 60 through 63 can qualify for a higher $11,250 catch-up.

However, it’s more common for employers to make matching contributions to these accounts. With a 401(k) match, the employer can determine what percentage of employees’ income to match. Unlike with a 457(b), employer contributions generally do not reduce the amount an employee can defer under the $24,500 limit. Employee and employer contributions are instead subject to a separate overall contribution limit, which is generally $72,000 in 2026 before catch-up contributions.

A traditional 401(k) grows tax-deferred, with withdrawals taxed at your ordinary tax rate in retirement. Some employers offer a Roth 401(k) option. Taxable withdrawals before age 59 ½ may also be subject to a 10% additional tax unless an exception applies.

Your plan may allow for loans, and governmental 457(b) plans may also permit participant loans. Nongovernmental 457(b) plans cannot offer them. With either a 401(k) or governmental 457(b), loan availability and terms depend on the plan. A loan that is not repaid as required may be treated as a taxable distribution.

Pros and Cons of Saving in a 457(b)

One of the main advantages of saving in this type of account is that it’s a non-qualified plan. Eligible distributions from a 457(b) generally are not subject to the 10% additional tax that can apply to early withdrawals from a 401(k). However, that does not mean you can take money from a 457(b) whenever you want.

Distributions generally require an event permitted under federal rules and the terms of the plan. These can include separation from employment, an unforeseeable emergency, plan termination and certain other circumstances. Governmental 457(b) plans may also permit in-service distributions beginning at age 59 ½.

An unforeseeable emergency is subject to a narrower standard than a 401(k) hardship withdrawal. It generally involves a severe financial hardship caused by circumstances beyond the participant’s control, such as certain illnesses, accidents, casualty losses or other extraordinary events. College tuition and the purchase of a home generally do not qualify on their own as unforeseeable emergencies.

Governmental 457(b) plans may allow participant loans. When available, federal rules generally limit borrowing to the lesser of $50,000 or 50% of the participant’s vested account balance, subject to applicable exceptions. Nongovernmental 457(b) plans cannot offer participant loans.

There are other important differences between the two types of 457(b) plans. Assets in a governmental plan must be held for the exclusive benefit of participants and beneficiaries. A nongovernmental 457(b), by contrast, must remain unfunded, and its assets generally remain subject to the employer’s creditors.

Rollover rules also differ. Eligible distributions from a governmental 457(b) can generally be rolled over to another eligible retirement plan, including an IRA, 401(k), 403(b) or another governmental 457(b) that accepts the rollover. Nongovernmental 457(b) distributions generally cannot be rolled over to those accounts.

However, 457(b) plans may charge higher administrative and management fees than other types of workplace retirement plans. You may also have a more limited range of investment options to choose from within the plan. That could pose a challenge to your diversification strategy.

Pros and Cons of Saving in a 401(k)

These plans allow more leeway when it comes to employer-matching contributions. That’s great if you’re funneling a big chunk of your income into your account each year. Employer contributions do not reduce the employee’s $24,500 elective deferral limit, although employee and employer contributions count toward the plan’s separate overall contribution limit.

Some drawbacks to 401(k)s include the fees and investment choices linked to individual plans. Some plans, for instance, may charge more in administrative fees and cut into returns. Or, your plan may not offer the investments you’re interested in adding to your portfolio.

Access to the money can also be more restrictive in some circumstances. A 401(k) generally requires a permitted distribution event, and taxable distributions before age 59 ½ may face a 10% additional tax unless an exception applies. Some plans permit loans or hardship distributions, but availability depends on the plan’s terms.

457(b) vs. 401(k)

You may have access to a 457(b) and a 401(k). The IRS says it’s okay to contribute to both at the same time. Since the 457(b) contribution limit is separate from the employee elective deferral limit for a 401(k), having both plans can substantially increase how much you can contribute each year.

Which account you fund first can depend on employer matching contributions, fees, investment choices and the type of 457(b) your employer offers. Access to your savings may also factor into that decision. After separation from service, for example, distributions of money contributed directly to a governmental 457(b) generally are not subject to the 10% additional tax that can apply to an early 401(k) withdrawal. That does not mean a 457(b) allows unrestricted withdrawals while you are still employed.

A nongovernmental 457(b) requires additional considerations because it does not offer the same Roth, loan or rollover options as a governmental plan, and plan assets remain subject to the employer’s creditors.

How to Save in a 457(b) and 401(k) at the Same Time

Workers with access to both a 457(b) and a 401(k) can use the accounts together to increase their retirement contributions. The employee deferral limit for a 457(b) is separate from the limit that applies to a 401(k).

Using 2026 limits, you could contribute up to $24,500 to each account. That creates room for as much as $49,000 in combined employee contributions before any applicable catch-up contributions.2

You do not need to max out both plans. For example, putting $15,000 into your 401(k) would not prevent you from contributing up to $24,500 to an eligible 457(b), assuming you meet the applicable requirements.

An employer match can help guide which account you fund first. Contributing enough to capture the available match can add employer money to your retirement savings before you direct additional contributions toward the other plan.

Access to your savings is another consideration. Eligible distributions from a governmental 457(b) generally avoid the 10% additional tax that can apply to early 401(k) withdrawals, although pretax distributions are generally subject to ordinary income tax. However, amounts rolled into a governmental 457(b) from another type of retirement plan can remain subject to the 10% additional tax that applied to the original account.

Using both plans can be particularly useful when you want to save more than one account allows. Instead of choosing between a 457(b) and 401(k), eligible workers can divide their savings between the two based on matching contributions, investment choices, fees and expected withdrawal needs. If one of the accounts is a nongovernmental 457(b), its more limited Roth, loan and rollover rules and the employer creditor risk are additional factors to consider.

Bottom Line

Both a 457(b) and a 401(k) can help you grow retirement savings for the long term. But whether a 457(b) is governmental or nongovernmental can change how the plan works. Governmental plans can offer Roth contributions, age-based catch-ups, participant loans and broader rollover options that are not available with nongovernmental 457(b) plans. Distributions from either type of 457(b) also require a permitted event rather than allowing participants to withdraw money at any time. Government employees may be able to double up their savings if they have access to both a governmental 457(b) and a 401(k). It all depends on whether or not an employer includes both plans as retirement savings options.

Retirement Savings Tips

• A financial advisor can help you compare the plans available through your employer and decide how each fits into your retirement strategy. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Use SmartAsset’s free retirement calculator to see if you’re on track to meet your goals.

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