What Happens to a 457b After Leaving Job?

The 457(b) Deferred Compensation Plan is intended to encourage employee savings through tax-deferred arrangements, unlike traditional retirement plans which provide employer matches.

Many doctors can access either a government or non-government 457(b). When considering tax savings vs. potential withdrawal options and restrictions, it’s essential to carefully weigh both options against one another.


A 457b is a tax-advantaged retirement account specifically for public employees. Similar to the popular 401(k) plans used at for-profit companies, its main distinction from them is that funds cannot be withdrawn until you either leave employment or reach retirement age.

Your 457b savings options allow for pre-tax or Roth contributions, the former helping reduce your taxable income in the year of contribution; with regard to Roth contributions, when taking out your distribution you will owe taxes on investment earnings.

Transferring assets may also involve moving them from your current employer’s eligible retirement plan or traditional IRA into another. For transfers involving government 457b plans, specific requirements will have to be met first before proceeding. Before making any moves it’s wise to consult a financial professional who will help determine if taking lump-sum distribution without incurring an early withdrawal penalty is an option for you.


A 457(b) plan is a tax-advantaged retirement savings account offered to employees of state and local government organizations as well as tax-exempt employers such as universities. Money in this plan grows tax deferred until you withdraw it; depending on how it’s used, withdrawals may incur income taxes.

Contrary to 403(b) plans, which charge an extra 10% early withdrawal penalty if funds are taken out early from them, 457(b) plans do not impose such fees, making them particularly appealing to physicians planning on leaving before age 59 1/2.

But with its many advantages comes its downsides. Since your 457(b) money belongs to your employer, it could become subject to their creditors in bankruptcy proceedings and not as safe from predators as an IRA or 401(k). As a result, many doctors opt not to maximize their 457(b), instead opting instead for traditional IRAs instead.

Required minimum distributions (RMDs)

Similar to 401(k)s and 403(b)s, 457(b) funds require participants to take Required Minimum Distributions at age 72. A participant can either take out all their earnings in one lump sum payment, or divide it over three years at substantially equal installments – though unlike IRAs they are subject to income taxes.

Governmental retirement plans allow participants to make catch-up contributions of up to double the regular contribution limit during the three years prior to retirement, however there may be restrictions on withdrawing before age 59 1/2 without incurring a 10% penalty fee.

Non-governmental plans typically offer less restrictive withdrawal rules but fewer investment choices, so participants must carefully weigh the pros and cons of using a 457(b). Furthermore, such plans often don’t offer protection from employer creditors; all assets remain the property of the plan sponsor which could become an issue should their business go out of business.


457(b) plans do not impose an early withdrawal penalty when you leave an employer, but like other retirement accounts they are subject to income tax regulations on distributions made from them.

Non-governmental 457bs also permit participants to port their balance into another employer plan or an IRA, though investment choices may be more limited than with governmental plans. This portability could prove invaluable if you frequently switch jobs or work for a company without an available 457b.

A 457b retirement account allows public sector employees to save a portion of their salaries in an individual retirement account (IRA), where it will be invested in mutual funds and annuities. Just like traditional and Roth 401(k)s, 457bs also feature mandatory minimum distributions; however, should your withdrawal funds before age 59 12 you won’t have to pay an early withdrawal penalty fee of 10%!

Raymond Banks Administrator
Raymond Banks is a published author in the commodity world. He has written extensively about gold and silver investments, and his work has been featured in some of the most respected financial journals in the industry. Raymond\\\'s expertise in the commodities market is highly sought-after, and he regularly delivers presentations on behalf of various investment firms. He is also a regular guest on financial news programmes, where he offers his expert insights into the latest commodity trends.

Categorised in: