Tax benefits for a 457(b) vs Roth IRA - which is better?

The 457(b) and Roth IRA actually have different tax advantages, and you might want to consider using both if possible. With a 457(b), your contributions are pre-tax, meaning they reduce your taxable income now. For example, if you contribute $3,175 (5% of your $63,500 salary), your taxable income drops to $60,325. This gives you immediate tax savings. However, when you withdraw in retirement, you'll pay taxes on both your contributions and earnings. A Roth IRA works the opposite way. You contribute after-tax dollars (no immediate tax break), but qualified withdrawals in retirement are completely tax-free, including all the growth. The 2025 Roth IRA contribution limit is $7,000 ($8,000 if you're 50+). The big advantage of a 457(b) is higher contribution limits ($23,000 in 2025) and, unlike other plans, no early withdrawal penalty (though you'll still pay income tax). Also, as a government employee, you can actually contribute to both a 457(b) AND another retirement plan like a 403(b) up to the full limit for each!

I was in your same position last year - confused about which retirement account would save me the most on taxes. I struggled with comparing my 457(b) vs Roth until I found this tool called taxr.ai (https://taxr.ai) that actually analyzed my specific tax situation. It showed me exactly how much I'd save in taxes with different contribution amounts to each account type. What I really liked is that it showed me the long-term tax implications of each choice based on my specific income and tax bracket. I uploaded my previous year's tax return and it gave me personalized recommendations instead of the general advice I was finding online. Might be worth checking out to see what makes sense for your specific situation.

Just wanted to follow up - I actually tried out that taxr.ai site after seeing it mentioned here, and it was pretty eye-opening! I've been maxing out my 401k for years but never considered a 457(b) or Roth IRA for tax diversification. After uploading my tax return, it showed me I could save about $3,700 in lifetime taxes by splitting my contributions between my pre-tax retirement account and a Roth. The analysis also showed how my Required Minimum Distributions would be much more manageable with this balanced approach. Definitely worth checking out if you're trying to optimize your retirement accounts from a tax perspective!

If you're getting serious about retirement planning and have tax questions about your 457(b) or Roth IRA, you might also want to talk directly with the IRS to get official guidance. I was trying to figure out some weird rollover rules last month and spent DAYS trying to get through to the IRS. Was about to give up when I found this service called Claimyr (https://claimyr.com) that got me connected to an actual IRS agent in under 20 minutes! There's a video showing how it works here: https://youtu.be/_kiP6q8DX5c I was super skeptical, but I was desperate after being hung up on by the automated system for the 5th time. They basically call the IRS for you and navigate the phone tree, then call you when they have an agent on the line. I got clear answers about my specific 457(b) rollover situation that I couldn't find anywhere online.

I have to eat my words about that Claimyr service. After posting my skeptical comment, I decided to try it because I've been fighting with the IRS for 3 months about a missing 1099-R from a 457(b) rollover. No joke - I was connected to an IRS agent in 17 minutes. The agent was able to see that my rollover had been coded incorrectly in their system (which is why I got a CP2000 notice claiming I owed additional taxes). They fixed it on the spot and confirmed I'd receive an updated notice within 30 days. Would have taken me another 6 months to resolve this by mail. Sometimes being proven wrong is actually a good thing!

Just to add to the conversation about 457(b) tax benefits - one HUGE advantage nobody mentioned yet is that 457(b) plans don't have the 10% early withdrawal penalty that other retirement plans have if you take money out before 59½. You still pay regular income tax, but avoiding that 10% penalty is a big deal if you want to retire early or might need the money before traditional retirement age. Also, don't overlook that the annual contribution limit for 457(b) plans is separate from 401k/403b limits. If your employer offers both types, you can potentially contribute $23,000 to EACH plan in 2025 for a total of $46,000 pre-tax! That's a massive tax deduction.

Anyone know if you can roll over a 457b into a Roth IRA? I have both and wanna consolidate. Also whats the tax hit look like if I do that?

Great question about 457(b) vs Roth IRA! At your income level and age, you're in a really good position to take advantage of both. One thing I'd add to the excellent advice already given is to think about your expected retirement income. If you think you'll be in a lower tax bracket in retirement (which is common), the 457(b)'s immediate tax deduction could be more valuable now. But if you expect to be in the same or higher bracket later, the Roth's tax-free withdrawals become more attractive. Since you're 32, you have about 33+ years for money to grow. That's a LONG time for compound growth, which makes the Roth IRA's tax-free earnings particularly powerful. Even a small amount contributed to a Roth now could grow substantially by retirement. My suggestion: Keep contributing to your 457(b) to get any employer match first (free money!), then open a Roth IRA and contribute what you can afford. Even $100-200/month to a Roth would give you great tax diversification. You can always adjust the split later as your income changes or you learn more about retirement planning.

As someone who works in tax administration, I want to emphasize a few key points that might help with your decision: First, your timing is actually perfect - you're young enough that even small contributions to a Roth IRA will have decades to compound tax-free. At 32, money you put in a Roth today has about 35+ years to grow before you hit retirement age. Second, don't overlook the flexibility factor. Your 457(b) is great for immediate tax savings (you're probably saving around $635 in federal taxes annually on that 5% contribution), but the Roth gives you more flexibility - you can withdraw your contributions (not earnings) penalty-free for emergencies or first-time home purchase. One strategy to consider: Since you're in the 22% tax bracket at $63,500, you might want to contribute enough to your 457(b) to stay in that bracket, then put additional savings into a Roth IRA. This gives you the best of both worlds - immediate tax savings now, plus tax-free growth for the future. Also, make sure to check if your county offers any matching contributions to the 457(b). If they do, definitely contribute at least enough to get the full match before putting money elsewhere - that's guaranteed return on investment. The fact that you're thinking about this now puts you way ahead of most people your age. Keep asking questions and don't be afraid to start small with whichever option you choose!

One thing I haven't seen mentioned yet is the "catch-up" provision that makes 457(b) plans especially powerful for government employees. Once you're within 3 years of your plan's normal retirement age (usually when you can retire with full benefits), you can contribute up to DOUBLE the annual limit - that's potentially $46,000 in 2025 instead of the usual $23,000. This is in addition to the regular age 50+ catch-up contributions. This is huge for government workers who might have gotten a late start on retirement savings or want to supercharge their final years before retirement. No other retirement plan type offers this kind of flexibility. Given that you're 32 and just starting to think seriously about retirement planning, you're actually in a great position. My recommendation would be: contribute enough to your 457(b) to get any employer match, then split additional savings between maxing out your 457(b) (for the tax deduction and future catch-up potential) and opening a Roth IRA (for tax diversification and flexibility). Even if you can only do $200/month to the Roth now, that's $2,400/year that will grow tax-free for the next 35+ years. Don't overthink it too much - the most important thing is that you're saving consistently. You can always adjust your strategy as you learn more or your income changes.

Coming from someone who made this exact decision a few years ago - I'd strongly recommend doing both if your budget allows it! I started with just the 457(b) like you, but adding a Roth IRA was one of the best financial moves I made. Here's what worked for me: I kept my 457(b) contribution at the level needed to get any employer match (check if your county offers one!), then opened a Roth IRA and started with just $150/month. Even that small amount has grown significantly over the past few years. The key insight for me was realizing that having both gives you incredible flexibility in retirement. With your 457(b), you're essentially betting that you'll be in a lower tax bracket when you retire. With the Roth, you're betting that tax rates might be higher in the future or that you'll want tax-free income options. Having both means you win either way! At your age and income level, I'd probably suggest keeping your current 457(b) contribution (that immediate tax break is nice), then try to add $200-300/month to a Roth IRA if possible. The combination of immediate tax savings plus decades of tax-free growth is hard to beat. Plus, the Roth gives you access to your contributions (not earnings) without penalties if you ever need emergency funds. Don't stress about making the "perfect" choice - the fact that you're saving 5% at 32 already puts you ahead of most people your age!

This thread has been incredibly helpful! As someone who's also in their early 30s working for a government entity, I've been wrestling with similar retirement account decisions. The explanations about tax diversification really clicked for me - having both pre-tax and after-tax buckets makes so much sense for managing future tax liability. One thing I'm curious about that I haven't seen addressed: how do Required Minimum Distributions (RMDs) factor into the 457(b) vs Roth IRA decision? I know traditional retirement accounts require you to start taking distributions at 73, but Roth IRAs don't have RMDs during your lifetime. For someone our age with potentially 40+ years until retirement, could this be another point in favor of prioritizing Roth contributions? Also, @Serene Snow, have you had a chance to check with your county HR about whether they offer any matching on the 457(b)? That would definitely influence the strategy since employer matching should always be the first priority. Even a small match like 50 cents on the dollar up to 3% of salary would be worth getting before putting money anywhere else. The consensus here seems to be doing both accounts if possible, which makes a lot of sense given all the benefits people have outlined. Starting small with whatever you can afford consistently seems like the key!