Comparison of tax-exempt 457(b) plans and governmental 457(b) plans

 

Feature Tax-exempt 457(b) plan Governmental 457(b) plan
Eligible employer Tax-exempt employer that isn’t a state or local government (or political subdivision, instrumentality, agency) State or local government or political subdivision or instrumentality or agency
Written plan document required? Yes Yes
Eligible participants Limited to select management or highly compensated employees Employees or independent contractors who perform services for the employer may participate
Coverage; nondiscrimination testing No No
Salary reduction contributions (employee elective deferrals) permitted? Yes Yes
Ability to designate all or portion of salary reduction contribution as a Roth contribution No Yes
Employer contributions permitted? Yes Yes
Salary reduction contribution limit, in general Lesser of applicable dollar limit ($23,000 in 2024; $22,500 in 2023; $20,500 in 2022; $19,500 in 2020 and in 2021) or 100% of participant’s includible compensation Lesser of applicable dollar limit ($23,000 in 2024; $22,500 in 2023; $20,500 in 2022; $19,500 in 2020 and in 2021) or 100% of participant’s includible compensation
Increased salary reduction limit for final 3 years before attaining normal retirement age

Lesser of:

  • 2x applicable dollar limit ($46,000 in 2024; $45,000 in 2023; $41,000 in 2022; $39,000 in 2020 and in 2021) or
  • applicable dollar limit plus sum of unused deferrals in prior years (only if deferrals made were less than the applicable deferral limits) (Note: age 50 catch up contributions not allowed; no coordination needed)

Lesser of:

  • 2x applicable dollar limit ($46,000 in 2024; $45,000 in 2023; $41,000 in 2022; $39,000 in 2020 and in 2021) or
  • applicable dollar limit plus sum of unused deferrals in prior years (to the extent that deferrals made were less than the applicable limits on deferrals; age 50 catch up contributions aren’t counted for this purpose)

Note: Can’t use the increased limit if using age 50 catch up contributions. Therefore, in years when an employee is eligible to take advantage of both, the employee can use the higher of the two increases to the limit.
Salary reduction contribution limits- Age 50 catch-up contributions (for individuals who are age 50 or over at the end of the taxable year) Not permitted

Salary reduction dollar limit increased by $7,500 in 2024 up to a total of $30,000 ($7,500 in 2023 up to a total of $30,000; $6,500 up to a total of $27,000 in 2022; $26,000 in 2020 and in 2021)

Note: See above. Can’t use in years that a participant is taking advantage of the increased limit during the final 3 years before attaining normal retirement age.
Timing of election to make salary reduction contribution Before the first day of the month in which the compensation is paid or made available Before the first day of the month in which the compensation is paid or made available
Total contribution limits (both salary reduction and employer contributions) Same as limit for salary reduction contributions. So, any employer contribution limits the amount of salary reduction contribution an employee can make (and vice versa) Same as limit for salary reduction contributions. So, any employer contribution limits the amount of salary reduction contribution an employee can make (and vice versa)
Correcting excess elective deferrals Distribute excess (plus allocable income) by April 15 following the close of the taxable year of excess deferral Distribute excess (plus allocable income) as soon as administratively practicable after the plan determines that the amount is an excess deferral
Contributions to trust? No Yes
Participant loans permitted? No Yes
Hardship distributions permitted? Yes, if both:
  1. the distribution is required as a result of an unforeseeable emergency, for example, illness, accident, natural disaster, other extraordinary and unforeseeable circumstances arising from events beyond the participant’s (or beneficiary’s) control, and
  2. the participant exhausted other sources of financing and the amount distributed is necessary to satisfy the emergency need (and tax liability arising from distribution)
 Yes, if both:
  1. the distribution is required as a result of an unforeseeable emergency, for example, illness, accident, natural disaster, other extraordinary and unforeseeable circumstances arising from events beyond the participant’s (or beneficiary’s) control and
  2. the participant exhausted other sources of financing and the amount distributed is necessary to satisfy the emergency need (and tax liability arising from distribution)
Automatic enrollment permitted? No Yes
Taxation Earlier of when made available or distribution Distribution
Distributable events
  • Attainment of age 70 ½
  • Severance from employment
  • Unforeseeable emergency (see above)
  • Plan termination
  • Qualified domestic relations order
  • Small account distribution (not to exceed $5,000)
  • Attainment of age 70 ½
  • Severance from employment
  • Unforeseeable emergency (see above)
  • Plan termination
  • Qualified domestic relations order
  • Small account distribution ($5,000 or less)
  • Age 59 1/2 for in-service distributions
  • Permissible EACA withdrawals
Required minimum distributions under Internal Revenue Code Section 401(a)(9) Yes Yes
Rollovers to other eligible retirement plans (401(k), 403(b), governmental 457(b), IRAs) No Yes
Availability of statutory period to correct plan for failure to meet applicable requirements No Yes, until 1st day of the plan year beginning more than 180 days after notification by the IRS
Availability of IRS correction programs including the Employee Plans Compliance Resolution System (EPCRS) under Rev. Proc. 2021-30 Generally, not available to correct failures for an unfunded plan benefiting selected management or highly compensated employees. May consider closing agreement proposals when nonhighly compensated employees are erroneously impacted. Can apply for a closing agreement with a proposal to correct failures. Proposal is evaluated according to EPCRS standards.
Page Last Reviewed or Updated: 31-Jul-2024