Glossary
457(b)
A 457(b) is a deferred compensation retirement plan offered mainly by state and local governments and some nonprofits, letting employees set aside salary before tax with its own contribution limit separate from a 401(k) or 403(b).
The 457(b) limit does not share space with 401(k)/403(b) limits, so an employee with access to both plan types can defer into each. Governmental 457(b) plans also have a distinctive feature: withdrawals after separation from service are not subject to the 10% early-distribution penalty that applies to most other plans, though ordinary income tax still applies.
Why it matters in practice
For public employees who may retire or change careers before 59½, the penalty treatment makes the 457(b) unusually flexible. For high savers with two plan types available, the separate limit can nearly double annual tax-advantaged savings capacity.
In California
Many California cities, counties, and agencies — and the state's Savings Plus program — offer 457(b) plans to employees alongside CalPERS pensions.
Related terms: 401(k) · 403(b) · Deferred Compensation · CalPERS · Tax-Deferred