What Happens to a 457b After Leaving Job?

What happens to a 457b after leaving job

A 457b is a tax-deferred retirement account that does not belong to you personally, like a 401(k) or 403(b). Instead, its funds belong solely to its manager.

State and local governments or non-profit organizations like universities may provide such plans. Funds invested pre-tax are invested in mutual funds or annuities.


As with 401(k) and 403(b) plans, 457(b) plans allow participants to save tax-deferred. Employees may withdraw funds after reaching certain ages or for unforeseeable emergencies as needed and even borrow against their balances.

One major distinction between 457(b)s and 401(ks is that 457(bs) don’t impose early withdrawal penalties when leaving employment; you will still pay regular income taxes upon withdrawals; additionally, funds held in government 457(b)s tend to be protected against their creditors (but not from federal or state creditors).

If you move your 457(b) balance into an account with similar tax-deferred status as its original retirement plan, any money rolled over won’t count against your annual contribution limit; however, any amount transferred must at least $5,000; otherwise errors in administration could occur, including mistaken calculations, inadequate documentation and withdrawals that exceed what’s needed in an emergency situation.

Hardship Withdrawals

Once you leave a job at any age, withdrawals from a 457(b) plan should usually be free from penalty and taxes will need to be paid on them. For those under 59 1/2, withdrawal must be for an extenuating circumstance such as illness, injury, unemployment, divorce/separation/eviction or foreclosure proceedings or property losses/funeral costs/debt repayment etc.

A 457(b) retirement plan is an IRS-sanctioned retirement savings vehicle designed for state and local government employees and tax-exempt organizations. Contributions made with pretax dollars do not incur taxes until withdrawal; employer contributions follow a vesting schedule with any non-vested funds forfeited upon leaving their organization.

While government plans allow participants to switch accounts over to other vehicles, non-governmental 457(b) plans tend to be less flexible and offer fewer investment choices compared to private sector 401(k) plans, and may carry greater risk due to being dependent upon one employer’s financial stability.


Employees employed can choose to put part of their paycheck into a 457(b) account while employed, which reduces take-home pay while providing tax-deferred growth of funds. When leaving their employer, this money can be transferred into any IRS-listed retirement plan; or withdraw it early depending on their plan rules if an unforeseen hardship or certain age are experienced.

Two types of 457(b) plans exist: governmental and non-governmental. Governmental 457(b) accounts are held in trust for participants while assets held within non-governmental accounts are available to creditors and are less prioritized than other assets of the company. Therefore it is essential to carefully coordinate retirement savings accounts when selecting different options available.


457(b)s enable employees to set aside part of their salary into retirement accounts similar to 401(k). Employees can invest the funds in mutual funds or annuities; both governmental and non-governmental plans exist with contributions limited at $22,500 annually for 2023 while the latter allows up to 30% of includible compensation (maximum contribution limit: $30k).

Non-governmental 457(b) plans do not offer the same asset protection as their 401(k) and 403(b) counterparts due to being owned by employers rather than participants, leaving these accounts open to creditors in case of bankruptcy – though this reduces administrative costs significantly for your company.

Like with IRAs, 457(b) distributions are subject to tax when taken, although unlike IRAs there’s no 10% penalty surtax when taken before age 59 1/2. Required Minimum Distributions (RMDs) generally start when an employee turns 72 but these can be postponed.

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