There are two kinds of 457 plans in the Internal Revenue Code (IRC) — the 457(f) which is for top executives in NPOs and the 457(b), which is provided to state and local government employees.
For the most part, 457 plans work similarly to a 401(k) or 403(b) plan and are available for governmental and certain nongovernmental employers in the United States.
The primal difference between 457 and 401(k) is that – 457 plans have no penalties if they’re withdrawn before the age of 55 or 59½ for IRA accounts. Furthermore, 457 plans (both b and f) allow independent contractors to participate in the plan unlike 401(k) and 403(b) plans.
457 plans, be it 457(b) or 457(f), become the best retirement savings option if the person works for the state or local government, or for some NPOs like a church.
The employer offers the plan and the employee adheres compensation to it on a pretax or post-tax (Roth) basis. After retirement, a person can withdraw funds, leave them as they are, transfer them to a 457, 403(b) or 401(k) of a new employer, or roll them into an Individual Retirement Account (IRA).