The Bottom Line
A 457(b) plan helps public employees save more through payroll deduction with penalty-free access once they leave their job (for governmental plans). A Roth IRA grows trax-free with no lifetime RMDs and gives you full investment control. The ideal plan for most people is to maximize both—then move part of your savings into a Fixed Indexed Annuity (FIA) with an increasing GLWB for lifetime income you can’t outlive. This income is contractually guaranteed and doesn’t even include Social Security.
How Each Plan Works and Why It’s Different
Roth IRA: A Roth IRA is an individual retirement account that allows you to make after-tax contributions. The major benefit is that your investments grow tax-free, and withdrawals are tax-free in retirement. It’s available to anyone with earned income within the IRS income limits, providing a broad range of investment options to help you grow your wealth.
457 Plan: A 457 plan is a deferred compensation plan offered to employees of state and local governments and certain nonprofit organizations. Contributions are made pre-tax, which reduces your taxable income for the year, but withdrawals are taxed. These plans typically offer higher contribution limits and the potential for employer-matching contributions, enhancing your retirement savings.
Key Differences
| Feature | Roth IRA | 457 Plan |
|---|---|---|
| Tax Treatment | Contributions are after-tax; withdrawals are tax-free | Contributions are pre-tax; withdrawals are taxed |
| Contribution Limits | $7,500 in 2026, plus a $1,100 catch-up if 50 or older | $24,500 in 2026, with $8,000 catch-up option if 50 or older and $11,250 if 60-63. |
| Income Restrictions | Yes, based on modified adjusted gross income | No income restrictions |
| Withdrawals | Possible, depending on the employer’s policy | No early withdrawal penalty, but distributions are subject to income tax |
| Employer Match | Not applicable | A broad range of investment options |
| Investment Choices | Broad range of investment options | Limited to options provided by the plan |
Pros and Cons
Roth IRA Pros:
- Tax-free growth and withdrawals
- No RMDs during the account holder’s lifetime
- Wide range of investment choices
Roth IRA Cons:
- Income limits for contributions
- Lower contribution limits compared to 457 plans
457 Plan Pros:
- Higher contribution limits
- No early withdrawal penalty if separated from employment, regardless of age
- Possible employer match
457 Plan Cons:
- Taxed at withdrawal
- Limited investment options
- Requires RMDs starting at the applicable RMD age—generally 73 for people born from 1951 through 1959 and 75 for people born in 1960 or later
Which Is Better For You?
- If you expect to be in a lower tax bracket in retirement: A 457 plan might be more beneficial due to the tax-deferred contributions.
- If you expect to be in a higher tax bracket in retirement or value tax-free withdrawals: A Roth IRA could be more advantageous.
- If you want to maximize your contributions: The 457 plan has higher contribution limits.
- If you’re looking for flexibility with withdrawals and investments: The Roth IRA offers tax-free and penalty-free withdrawals of contributions and a wider range of investment options.
Using Annuities With a 457(b) or Roth IRA
A Fixed Indexed Annuity (FIA) with an increasing GLWB (Guaranteed Lifetime Withdrawal Benefit) creates a personal pension that can rise with market performance or inflation adjustments. Typical withdrawal rates range between 5% and 8%, depending on age.
Benefits:
- Contractually guaranteed lifetime income.
- Principal protection.
- Opportunity for inflation-adjusted increases.
- Beneficiary protection and liquidity through GLWB (no forced annuitization).
Smart Savings Strategy
- Add an increasing GLWB to guarantee income that can rise with inflation.
- Contribute enough to your 457(b) to get any match.
- Use the special 457(b) catch-up within 3 years of normal retirement if underfunded.
- Fund your Roth IRA next for tax-free growth.
- Convert traditional IRA funds to a Roth IRA in low-income years.
- After separation, roll old plans to an IRA to simplify management and access annuity options.
What To Do Next
- Step 1: Max your 457(b) and Roth IRA contributions.
- Step 2: Evaluate Roth conversion opportunities to build tax-free income.
- Step 3: Use part of your IRA or Roth IRA for an FIA with an increasing GLWB for lifetime income.
- Step 4: Add life, Medigap, and long-term care coverage to protect your income plan.
- Step 5: Keep leftover funds flexible for investing or lifestyle spending.
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Questions From Our Readers
How much can I put in a Roth IRA?
For 2026, the contribution limit for a Roth IRA is $7,500 per year. If you are 50 years or older, you can contribute an additional $1,100 as a catch-up contribution, making the total $8,600. Eligibility to contribute to a Roth IRA phases out at certain income levels. Always check current IRS guidelines for updates.
Are 457 plans subject to Required Minimum Distributions (RMDs)?
Yes, 457 plans, which are deferred compensation plans for state and local public employees, as well as certain nonprofit employees, are subject to RMDs. Participants must begin taking distributions from their 457 accounts by April 1 following the year they reach age 73. However, some 457 plans might allow retired participants to delay taking RMDs if they continue to work.
Can you have a 457 plan and a Roth IRA?
Yes, you can contribute to both a 457 plan and a Roth IRA. A 457 offers tax-deferred growth, while a Roth IRA provides tax-free withdrawals in retirement, allowing for diversified tax advantages. Contribution limits apply separately.