Simple Guide: 457 vs Roth IRA Explained for Non-Finance Types

Maybe you’re a firefighter hearing about a 457(b). Maybe you’ve heard words like Roth, 457, IRA, and 401k thrown around and don’t know what they mean.

And maybe—you just want to get your retirement set-up and then forget about it.

Well you’re in the right place.

Let’s just clear it all up and make it simple.

Of course there’s so many options when it comes to personal finance, and things to consider, which makes researching retirement a challenge.

So let’s get to the bottom line first.

Let’s make the 457 vs roth IRA conversation stupid simple.

Then, the rest of this article will cover some of the various options with some of these plans which you can choose to read if you’re interested or if they apply.

So let’s get to it.

457 vs Roth: The Bottom Line

If you hear words like: Roth, 457, IRA, and 401k… just think retirement.

They are retirement accounts, and they’re set-up to help you save in taxes. But remember this:

  • There’s no free lunch in finance.

Don’t worry, Uncle Sam (IRS) will get their taxes from you. With these retirement accounts, which are called “tax-advantaged”, you get to save one layer of taxes instead of paying twice.

Yes that’s right; in the United States you get taxed twice when you invest—once before you invest and once after you invest. But that’s not the point today.

With the 457 vs Roth decision, here’s the bottom line:

  • Traditional 457: tax comes later.
  • Roth 457: get taxed now.

That’s right, I said Traditional 457… AND Roth 457.

The word “Roth” does not refer to an account per se. It is a type of account which refers to whether you get taxed now or later.

There are flavors of retirement accounts that can come “Roth” or not “roth”, and that applies to a 401k, IRA, or yes, a 457.

And yes, a 457(b) is a 457…

There are just two types of 457 accounts (“b” and “f”). The vast majority of government/non-profit employees will have a 457(b) instead of a 457(f), so I’ll use 457(b) and 457 interchangeably.

So should I go Roth?

Keep scrolling.

(skip the next section if you don’t care about IRAs)

457 vs Roth IRA

Now that begs the question, which gets asked a lot, what’s the difference between a 457(b) and Roth IRA?

Well actually there’s two differences.

A 457 and IRA (“Individual Retirement Account”) are two separate types of accounts. You can have both and can contribute to both.

In fact, anybody making less than $140,000 a year (Single) or $198,000 a year (Married filing jointly) is qualified to have an IRA (as of 2021).

Think of a 457 as the government’s version of a 401k.

Workers in the private sector can have both a 401k and IRA; in fact it’s recommended.

In general, you can have many IRA accounts, and even 401k accounts (if you’re a job hopper); you can also have multiple 457 accounts or both 401k and 457 (again if you’re hopping jobs/careers).

The question about the Roth IRA goes back to earlier.

Just like you can pick a 457 or Roth 457—you can pick a Traditional IRA (taxed later) or Roth IRA (taxed now).

So Should I Go Roth or No?

Unfortunately, this is where the personal in personal finance comes in.

I’m the type of person who likes to delay gratification. So I naturally like the Roth and have Roth IRA accounts.

But there’s no guarantee that my way is the best way.

Tax rates can change over time depending on who’s the president or what the political situation is.

So I could be paying more in taxes today and find out when I retire that tax rates are way lower and I would’ve been better contributing to a Traditional IRA instead of a Roth.

In the same way, tax rates could be higher during my retirement than they are now in which case I’m probably better off because I’m doing Roth IRAs instead of traditional.


If anybody says they know where tax rates will go decades from now…

  • They’re either lying to you or lying to themselves.

That’s another thing about finance (money):

  • Nobody knows what the future holds.

All we can do is make the best decisions that we can, which we feel fits our situation best.

So should you go Roth?

Well, a few questions you can ask yourself which could help with that:

  • Do I expect a higher income in retirement versus my income now?
  • Do I need more tax deductions now or can I push those to the future?
  • How are my personal finances today? Do I have (high-interest) debt I should pay off now, and so paying less in taxes today is probably better?

And if that’s all complex, how about this simple question…

Would I rather pay taxes now or later?

  • Now = Roth IRA or Roth 457.
  • Later = Traditional IRA or 457.

Can you contribute to an IRA if you have a 457 plan?

The short answer is yes.

Remember what I said earlier, IRAs and 457 plans are two separate types of accounts. They have their own contribution rules.

For example:

  • You can only contribute a MAXIMUM of $6,000 per year to ALL your IRA accounts (as of 2021)
  • You can only contribute a MAXIMUM of $19,500 per year to ALL your 457 accounts (as of 2021)

That leaves a grand total of $25,500 per year that you’re allowed to contribute.

Running up to that wall is a nice problem to have, right.

That said, you may be able to make “catch-up” contributions if you are closer to retirement (age 50 or older as of 2021). Here’s what the IRS has to say about that.

Should I Do an IRA or 457?

Say you aren’t hitting the max in contributions.

And you have to pick one or the other.

Fair enough, I’d say the general rules are the same as if you were a worker in the private sector and trying to decide between contributing to a 401k or an IRA:

  1. If your employer offers any match to a 401k or 457, ALWAYS take the match
    • That’s free money; it’s very hard to beat that even in the stock market
  2. After using up your match, try and contribute as much to your IRAs as possible
  3. After using your match, and your IRA max, then try and max your 457/401k

The reason I like the Roth IRA over say, a 401k, is that some employers don’t offer Roth 401k.

Same with 457 (from my understanding).

And what’s nice is that an IRA can be less of a headache, because you own it directly and there’s no trouble taking it from job-to-job. It’s like having a checking account.

You do still keep your 401k or 457 if you change jobs, but to transfer them can take some time. (But that headache is worth it if you’re getting a match).

Also, an IRA account tends to be more flexible than a 457/401k.

What I mean is that you can usually invest in many more things in an IRA—like individual stocks or ETFs. Some 457/401k plans have very limited menus of just a few mutual funds. (We’ve talked before about why ETFs are better than mutual funds).

Also, a Roth IRA is not subject to minimum distributions!!

You can scroll down to read more about “Required Minimum Distributions”—bottom line, a Roth IRA is yours to keep “forever”, while Traditional IRAs and 401k’s must be withdrawn over time (source).

Here’s how to open an IRA account; it’s very easy!

That said, these are all general rules.

Your individual options may be different depending on what your employer offers, and that’s where the personal side of personal finance comes in again.

Roth 457 vs Roth 401k

This might be a question for some of you.

Remember, you can have both a 457 and a 401k. It all depends on your job situation and what your employer offers you.

An employer will generally only offer one 401k account (private sector employees) or one 457 account (government employees and some non-profits).

And remember, you can have multiple IRA accounts, and 457 or 401k’s from previous employers.

That’s okay.

You likely won’t have the option to invest in both a Roth 457 and Roth 401k, unless you have two jobs. In that case, why not use both.

If you do have the option for either a 457 or 401k, because you work two jobs, or your spouse has the 457 option and you have the 401k option, then compare the plans first.

Go back to the list above: “Should I Do an IRA or 457?”

Take advantage of any employer match first, then decide whether you like the flexibility of IRA plans, and then follow contribution limits with each account type.

Roth 457 Distribution Rules

Maybe you’re a forward thinker and like to consider the end game.

Good, you’re in good company.

In general, if you want to withdraw money from your 457 (take a “distribution”), then you have to wait until retirement to do this without penalty.

Penalties for withdrawing early can include income taxes, which can be significant if you take a large withdrawal.

Be careful with large early withdrawals—tax rates go up the higher your income level and the withdrawals will raise your income level for that year.

If you have an emergency, you may qualify for an “Unforeseeable Emergencies” withdrawal, according to the IRS website. In this case you might want to contact your 457 account provider and ask them if your particular emergency qualifies.

Required Minimum Distributions

This is a rule from the IRS in regards to lots of different retirement accounts, such as IRAs, 401k’s, 457(b)’s, etc.

As they say on their website:

“You cannot keep retirement funds in your account indefinitely”.

After the SECURE act, the minimum age to start taking minimum distributions is when you turn age 72.

Unfortunately, the actual Required Minimum Distribution depends on your financial situation so I can’t spell it out easily here; the IRS has worksheets to calculate these which you can access here.

Investor Takeaway

I hope I’ve helped you answer the questions you have around 457 plans, Roths, IRAs, etc.

Depending on your situation, your solution might be simple, or complex.

Remember that there’s no shame in getting help from a professional.

The best athletes in the world take all of the advantages they can get, between trainers, coaches, physical therapists, and the like.

It’s dumb not to take advantage of the resources around you, which includes other professionals!

Just like it takes a village to raise a child, it takes a village of people to help you along your way… I don’t care how successful you are—it always took other people to propel you higher towards success. I’ve found that true in my own life as well as the many businesspeople I study.

One financial coach I highly recommend is Chris Grainger from FMG Financial Hope, you can access his website here. Chris has seen many different financial situations, really cares about what he does, and can point you towards financial freedom while answering any of your unique, personal questions.

If your financial situation is pretty simple… congrats!

Maybe you can follow along with the other great resources on our website to help DIY investors like yourself.

For those of us who find a passion with investing, there aren’t much greater fulfilling things than finding great investments to compound our wealth, and using that to help others.

If you want to take more of your investing into your own hands, our 7 Steps To Understanding the Stock Market eBook is the free guide we’ve created just for you!

Finally, please remember to pass it forward.

Like the great Tim McGraw song, “When you get where you’re going don’t forget turn back around. And help the next one in line. Always stay humble and kind.”

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