When it comes to retirement savings, most people are familiar with 401(k)s or IRAs. But if you work in the public sector, healthcare, education, or certain non-profit roles, you may have access to a lesser-known gem: the 457(b) retirement plan. This type of plan offers unique advantages that can significantly impact how quickly and efficiently you build wealth for retirement.
But the truth is, most people don’t take full advantage of what a 457 plan offers. Whether it’s misunderstanding the rules or simply underutilizing their employer’s matching program, leaving money on the table is a common mistake. The good news? With a few smart moves, your 457 plan can become a powerhouse for tax-deferred savings and long-term financial growth.
Here are five strategic ways to maximize your 457 plan and ensure you’re building wealth with intention, not just contributing blindly.
How to Make The Most Of Your 457 Plan
1. Contribute As Much As You Can, Especially After Age 50
One of the simplest yet most powerful ways to maximize your 457 plan is to contribute the maximum allowed each year. As of 2025, the annual limit is $23,000, and if you’re age 50 or older, you can take advantage of a catch-up contribution of an additional $7,500. That’s a total of $30,500 in potential tax-deferred savings per year.
Even better? Some 457 plans offer a special “final three years” catch-up provision, where you can contribute up to twice the annual limit if you’re within three years of retirement and haven’t maxed out contributions in previous years. That’s a rare feature not found in 401(k)s.
By pushing yourself to contribute as much as you reasonably can, especially later in your career, you allow more of your money to grow without interference from taxes. It’s one of the most effective wealth-building strategies available to public sector workers.
2. Understand the Unique Withdrawal Rules
Here’s where a 457 plan really shines compared to other retirement accounts: there’s no early withdrawal penalty if you take money out before age 59½, as long as you’ve separated from your employer. This gives you more flexibility in how you design your retirement timeline.
For example, if you retire early at 55, you could tap into your 457 plan without the 10% penalty you’d face with a 401(k) or traditional IRA. That makes the 457 ideal for bridge income if you’re planning an early retirement or a phased exit from your career.
Understanding this unique feature gives you more strategic options when coordinating other retirement accounts and Social Security benefits. If you’re intentional about timing your withdrawals, you could minimize your tax burden while maintaining cash flow.
3. Take Advantage of Employer Matching (If Available)
Not all 457 plans offer employer matching, but if yours does, never leave that money on the table. Matching contributions are essentially free money, and they can turbocharge your retirement savings over time.
For example, if your employer offers a 100% match on the first 5% of your salary and you earn $70,000 per year, you’d receive an additional $3,500 annually just by contributing that 5%. Over 20 years, with compound interest that can grow into a six-figure sum.
Even if your budget is tight, contribute enough to capture the full match. Think of it as an instant return on investment. While your own contributions reduce your taxable income, matched contributions also grow tax-deferred, further compounding the benefits.
4. Coordinate with Other Retirement Accounts
A 457 plan doesn’t limit your ability to also contribute to other retirement accounts like a 401(k), 403(b), or IRA. That’s a big deal for high-savers or dual-income households looking to layer their retirement strategies.
For example, if you have access to both a 457 and a 403(b), you can contribute the maximum to each, doubling your retirement savings potential. That’s $23,000 to your 457 and another $23,000 to your 403(b) in 2025, totaling $46,000 in tax-deferred savings. Add IRA contributions to the mix, and you’re building wealth at a pace most private-sector workers can’t match.
Just be sure to monitor your tax brackets, required minimum distributions (RMDs), and asset allocation across all accounts. Strategic diversification doesn’t just apply to investments. It applies to account types, too.
5. Choose Low-Cost, Growth-Oriented Investment Options
It’s not enough to contribute regularly. You also need to ensure your investment selections are working for you, not against you. Many people default to the most conservative options in their 457 plan or never revisit their allocations as their career progresses.
The best way to grow long-term wealth is by investing in low-cost, diversified funds that align with your risk tolerance and time horizon. Look for index funds or target-date funds with low expense ratios, ideally under 0.50%. Avoid high-fee, actively managed options unless you have a specific reason to use them.
And remember: your investment strategy at age 30 should look different from that at age 60. As you get closer to retirement, gradually shift from aggressive growth to a more conservative mix. But don’t get too cautious too early—growth is essential to beating inflation and building wealth over decades.
A 457 Plan Is More Than Just a Retirement Account
Your 457 plan isn’t just a savings vehicle. It’s a financial opportunity with unique advantages. From the lack of early withdrawal penalties to the potential for double contributions in late career, it’s one of the most flexible and generous retirement options out there.
But like any tool, its power depends on how well you use it. By contributing aggressively, leveraging catch-up rules, coordinating with other accounts, and investing wisely, you can turn your 457 into a serious wealth-building machine.
Do you currently contribute to a 457 plan, or are you just getting started? What’s your biggest question or challenge when it comes to using it strategically?
Read More:
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