Once upon a time, in 1889, German Chancellor Otto von Bismarck1 had a brilliant idea: pay older workers to retire at age 70 and free up jobs for younger folks. Considering the average person back then barely lived to 42, it was a clever plan – very few would actually cash in! Fast forward to today: retirement isn’t a political ploy or a far-fetched dream; it’s a well-earned chapter of life. And for those of us working for the City of Elizabeth, NJ, planning for that chapter just got a lot more interesting (and accessible) with the new 457(b) retirement plan option.
In this post, we’ll explore what the 457(b) is, how it works, and why it’s a game-changer for Elizabeth’s municipal employees. We’ll also dive into how it differs from the classic 401(k) or 403(b) plans you may have heard of and highlight some smart ways it lets your money grow.
457(b): Your New Retirement Plan
Think of a 457(b) plan as the government worker’s answer to a 401(k). It’s a tax-advantaged retirement savings account that state or local government employers (like the City of Elizabeth) offer to their employees. In practice, it works a lot like a 401(k) or 403(b): you contribute part of your paycheck into the plan before taxes are taken out2, and that money goes into an account where (hopefully) it grows until you retire. You only pay taxes when you withdraw the money down the road. In the meantime, you’re essentially deferring taxes to later and letting your contributions compound without Uncle Sam taking a bite each year.
That means if you decide to put, say, 5% of your salary into the 457(b), you won’t pay income tax on that 5% now. Your taxable income goes down, and you invest more of your money instead of handing it to the IRS. The funds in your 457(b) account can be invested in various options provided by the plan – typically things like mutual funds or annuity products (more on the annuity part later). Over time, those investments can earn interest or gains.
Now, a 457(b) isn’t some experimental new thing – it’s actually named after a section of the IRS code, just like the others. The big deal is that now, as a city employee in Elizabeth, you have access to one of these plans. If you’ve ever felt a twinge of pension envy hearing about corporate 401(k) matches, or teachers’ 403(b) plans, the 457(b) is your turn to join the retirement savings party.
457(b) vs. 401(k) vs. 403(b): Decoding the Retirement Alphabet Soup
By now you might be thinking, “Alright, I get 457(b) is a retirement plan. But how is it different from the other alphabet-soup plans like a 401(k) or 403(b)?” Great question! They’re all cousins in the retirement plan family, but here are the key differences:
Who Can Use Them: A 401(k) is typically offered by private companies (think corporate jobs), while a 403(b) is for employees of public schools, hospitals, and nonprofits. The 457(b)3, on the other hand, is reserved for government and municipal workers (and some nonprofits). If you’re getting a paycheck from the City of Elizabeth (and you’re not a firefighter covered by a different system), congratulations – you’re the target audience for a 457(b).
Contribution Limits: All three plans have yearly contribution limits3 set by the IRS (often the same dollar limit across 401k/403b/457b – for example, $22,500 in 2023, not counting catch-up for over 50). One cool twist: if you happen to have both4 a 457(b) and a 403(b)/401(k) (some public sector folks do), the 457(b) limit is separate. That means you could potentially sock away double the usual limit by contributing to both a 457(b) and, say, a 403(b). Double the tax-deferred savings, double the fun (for your future self, anyway). Most of us will just have the 457(b), but it’s nice to know it plays well with others.
| Feature | 457(b) | 401(k) | 403(b) |
|---|---|---|---|
| Contribution Limits (2025) |
★ $23,500 base limit
★ $7,500 catch-up for age 50-59
★ $11,250 catch-up for ages 60-63
Can contribute to BOTH 457(b) AND 401(k)/403(b) if available!
|
$23,500 base limit $7,500 catch-up for age 50-59 $11,250 catch-up for ages 60-63 Counts toward same limit as 403(b) |
$23,500 base limit $7,500 catch-up for age 50-59 $11,250 catch-up for ages 60-63 Counts toward same limit as 401(k) |
| Maximum Contribution (2025) |
★ Under 50: $23,500
★ Ages 50-59: $31,000
★ Ages 60-63: $34,750
|
Under 50: $23,500 Ages 50-59: $31,000 Ages 60-63: $34,750 |
Under 50: $23,500 Ages 50-59: $31,000 Ages 60-63: $34,750 |
Early Withdrawal Rules: Here’s where 457(b) really shines. With a 401(k) or 403(b), if you withdraw money before age 59½, you generally get hit with a nasty 10% early withdrawal penalty (unless you qualify for certain exceptions). Ouch. The 457(b) is different. If you leave your job, you can take out money from your 457(b) at any age without that extra 10% penalty5. That’s right – retire at 55 or change careers at 45, and your 457(b) can be tapped without the IRS slapping on a penalty for being “too young.” (You’ll still owe regular income taxes on the withdrawal, just no extra penalty.) This flexibility is huge for people who might hang up their boots earlier than 59½ or just want the freedom to use their money sooner if life throws a curveball.
Withdrawals for Emergencies: All plans allow special hardship withdrawals for true emergencies, but the criteria differ slightly5. 401(k)/403(b) have “financial hardship” rules, and 457(b) refers to “unforeseeable emergencies”. It’s a minor detail, but essentially, if something really bad happens and you absolutely need funds, these plans have some provision to let you access money. Just remember, hardship withdrawals are a last resort; the 457(b)’s no-penalty feature really comes into play more for planned early retirement or job changes, not day-to-day needs.
| Feature | 457(b) | 401(k) | 403(b) |
|---|---|---|---|
| Early Withdrawal Penalties |
✓ NO 10% penalty for withdrawals after separation from service at any age
Accessible at any age after leaving your job
Regular income taxes still apply
Perfect for early retirement or career changes!
|
✗ 10% penalty on withdrawals before age 59½ Limited exceptions apply (first-time home purchase, certain medical expenses) Plus regular income taxes |
✗ 10% penalty on withdrawals before age 59½ Similar exceptions as 401(k) Plus regular income taxes |
| Emergency Access |
Available for "unforeseeable emergencies" Must meet specific criteria Subject to plan administrator approval |
Available for "financial hardship" Must meet specific criteria Subject to plan administrator approval |
Available for "financial hardship" Must meet specific criteria Subject to plan administrator approval |
So, boiled down: 457(b) = designed for public servants, very similar to 401(k)/403(b) in savings power, but more flexible on withdrawals5. It’s like the relaxed cousin who says, “Retire when you want, I won’t penalize you for it.” That flexibility can make a world of difference.
Flexibility & Control: Your Money, Your Rules
If you think about a traditional pension, as wonderful as it is, you don’t control how much you get (it’s set by a formula) or when you get it (usually not until a certain age). And you certainly can’t pass it on easily to your heirs. The 457(b) is different – you’re in the driver’s seat.
Here are some ways the 457(b) puts you in control:
Your 457(b) Plan: Straightforward Benefits
Control, flexibility, and access when you need it
You Decide How Much to Save
Contribute as little or as much as you want each year, up to the IRS limit. You're in complete control of how much goes into your retirement account based on your current situation.
Start small and increase over time, or adjust as your circumstances change.
Easy Payroll Deductions
Contributions come out of your paycheck automatically before you even see the money. You won't see it, so you won't miss it.
Stop or adjust your contribution amount at any time - giving you flexibility as your needs change.
Investment Choices
Choose from a variety of investment options, including stock funds, bond funds, stable value funds, or fixed/indexed annuities.
You pick where your money goes based on your personal comfort level and financial goals. Adjust your investment mix as your needs change over time.
Access When YOU Need It
Unlike other retirement plans, the 457(b) lets you withdraw funds without penalty once you've separated from service, regardless of your age.
If you're still employed, normal restrictions apply unless it's an emergency. But after leaving your job, your money is available without the typical age-based penalties.
Portability and Legacy
When you retire, your options remain flexible:
- Roll your 457(b) into an IRA to continue deferring taxes
- Leave it in the plan and take withdrawals as needed
- Set it up so your beneficiaries receive whatever is left in your account
It's YOUR ASSET - you decide how and when to use it.
Wrapping It Up: Your Retirement, Your Terms
We’ve covered a lot, from how the 457(b) works to how it stacks up against other retirement plans to why it’s a smart move for City of Elizabeth workers like you. It’s an excellent tool for building your version of financial freedom.
Whether you’re just getting started or you’re halfway to retirement, the 457(b) gives you flexibility, tax advantages, and control over your money like never before. And if you stick with it, you might just thank your younger self down the road—for being the kind of badass who didn’t leave their retirement to chance.
But wait—we’re not done yet.
In the next article, we’ll go deeper into two powerful savings tools now available to City of Elizabeth workers: FIT Secure Growth and FIT Select Income, which combine guaranteed growth and lifetime income potential in ways that can seriously level up your 457(b) game.
So stay tuned. It’s about to get even better.
Sources:
- https://www.retirewithlongevity.com/resources/retirement-through-the-ages-a-history-of-pensions-and-policies
- https://www.fidelity.com/learning-center/smart-money/what-is-a-457b
- https://www.investopedia.com/ask/answers/100314/what-difference-between-401k-plan-and-457-plan.asp
- https://www.captrust.com/resources/navigating-the-number-jumble-403b-401k-457b-comparison/
- https://cms.illinois.gov/benefits/stateemployee/bewell/financialwellness/401k-v-457b-june22.html
